I’m reading hazlitt’s book. But I realize his assumptions.
He talks about if you have exports, you’ll have imports and vice versa. But his assumption is that neither trading countries will print money to trade right? Because according to his explanations, US would have a lot of exports too because of their buying power, but it doesn’t seem like it’s the case.
I thought we had a lot of exports due to our inflationary money policy?
inflationary money policy and exports? how are they linked. I thought the policy would be linked more with the money supply. Not in terms of exports.
And if so, …from a laymen’s perspective, the ‘Made In China’ tags are everywhere, not ‘Made in US’ tags. And also, if US had a lot of exports like you said, why is the deficit so big?
I once asked the guys here if exports and imports all balance out in the end, why is peter schiff so worried about us importing and never exporting?
Their answer was that we have nothing to give the chinese but paper money, because we dont make anything anymore. So that they will find they have nothing to buy with the paper dollars, except maybe big chunks of the country.
So that either we wind up with the chinese flag flying on everything here, or else we tell them, sorry, you just get to keep the paper. In the latter case they will say, OK you screwed us until now, but we wont trade with you anymore from now on. Bye bye. Which will leave us with bare shelves in the stores, cause we make nothing.
Hazlitt I guess knew about paper money, but assumed each counry made stuff.
haha thanks for the reply. At least I have my thoughts about what hazlitt wrote straightened out.
In terms of your reply for the China-US trade, I live in Hong Kong, and have a small theory on the conflict between the two nations. (I discussed this with my friends here and they agree as well)
Say for example, worst case scenario, US defaults on their dollars, it actually doesn’t do China any good. It’s actually a weapon (on US’ part) because defaulting on the bills, means destructive social unrest in China. And in terms of location, China won’t go to war with US by going on US soil. it’s 99.99999% unlikely. We’ve learnt from Sun Tzu Art of War, i.e. to attack someone on foreign land, you must fight intensively, but leave ASAP. And I’m sure China doesn’t wanna create another mess like what US has done in Iraq - staying in too long and now too late.
so yeah, basically, dollars still have power. China needs to support the dollar to prevent them from defaulting. If not, the result is social unrest.
I disagree. Wouldn’t it benefit you (The Chinese) in the long - run to stop taking devalued dollars because you are essentially giving away produced goods for worthless paper. It’s like when we (The Americans) were in World War 2, during the production of all the tanks, ammunition, and other military related items our economy was stressed. As soon as we returned home and war-time factories returned to outputting goods to be consumed by us, our economy bounced back.
What I’m getting out is how does it benefit you to trade with us? When you can allocate your resources domestically, which in turn reward the citizens with more leisure and a higher standard of living.
the US is going to default no matter what happens. here’s why:
I agree with what you said. Thats based on the assumption that, there is no social unrest. For the past 3000 years (from what I have learnt), if there’s social unrest, not even the government’s guns can stop the public to start a revolution (a physical one). The case for Americans is, if a revolution starts, it doesn’t pull down the country, it just changes parties. For Chinese (sorry but I still don’t consider myself as a Chinese mainlander, as I hold an Aussie passport, and yet they consider the Hong Kong people (i.e. Me) as “foreigners” by law), I really don’t see a peaceful build up of the economy again if dollars are defaulted. So assume US defaults the dollars, then there’ll be a big hole right on the chinese balance sheet right? Then how do we fill up that hole? Printing renmenbi? i.e. increase money supply, i.e. inflation? Isn’t that the thing the Chinese govt is current afraid of?
To answer your question "What I’m getting out is how does it benefit you to trade with us? ", well according to Marc Faber’s book, he says he thinks China wants to make US addicted to Gold to a point when there’s no return for US..haha.
sorry, not addicted to Gold…but addicted to Debt..
Yes, he’s talking about the natural state of things, and not our current Neo-Mercantilist international monetary system (which is utterly unsustainable).
He touches upon this stuff in the chapter on inflation. He often says “without inflation” throughout much of the book, and defers it all to this later chapter.
how I understand this is:
U.S. is inflating the dollar devaluing the purchasing power. This makes domestic economic goods and production more expensive while the economic goods in other countries, ie. China, are cheaper for those in the u.s. than buying domestically. Prices are not being allowed to drop in the u.s. to adjust to the devalued dollar due to this gov’t intervention.
Hazlitt makes no such assumption. In fact, his explanation is perfectly valid for fiat currencies floating against each other.
In principle, there is nothing wrong with exporting paper money if that is what the trading nation demands. If the trading nation sees value in holding american dollars or investing in paper assets, then that is a valid mutual exchange of goods that benefits both parties.
The trade deficit itself is a mercantilist concept. It is not a problem of some sort as long as it is the result of free market activity. The only problem with “deficits” today is that they are induced by government monetary and fiscal policies that are not sustainable in the long run.
hmm…from that perspective it does make sense. If there’s a demand, then its ok (though not sustainable in the long run). But when think from a micro point of view i.e. I’m a manufacturer in China, I made a pair of Nike shoes, and sell to Americans and get US dollars, its quite hard to understand from this perspective
but thanks for the input
And the manufacturer has voluntarily agreed to sell the shoes for x amount of dollars. Where is the problem? The manufacturer in China may see value in saving some of those dollars. From his perspective, he has made a choice that benefits himself. He wants to save and his other options for savings may not be any better.
true…totally valid 
Why would prices drop? (wouldn’t they raise if the gov. is inflating the dollar?)
yes
?..
NM I definitely just confused myself before re-reading that again.
no problem[:)]