Economics Questions

Re: Help with Balance of Trade

Jonathan M. F. Catalán — Thu, 08 Nov 2012 20:03:29 GMT

Our trade account has two sides: current account and capital account. A current account deficit means a capital account surplus, which essentially means that foreigners are buying U.S. assets. Currently, a significant amount of those assets are government bonds, which means that if we were to reduce the size of gov. debt held by foreigners our current account deficit would probably fall (unless they were to simply switch to alternative assets).

Re: Help with Balance of Trade

Jargon — Thu, 08 Nov 2012 17:59:51 GMT

In the first statement, I am asking:

Is it true or false that the foundational determining factor of whether a country is a net exporter or net importer a monetary one? (quotes around deficit and surplus, because these labels impute an objective quality of "goodness" and "badness" where it may not be applicable)

In the second statement, I am asking:

So say, hypothetically, the only two countries that exist on earthhave decided on an exchange rate for their currencies, and are inflating the money supply at the exact same speed, would there not be a net neutrality of exports/imports between the two?

Re: Help with Balance of Trade

Neodoxy — Thu, 08 Nov 2012 17:26:31 GMT

Jargon,

What do you mean by

"Does this then mean that issues of trade 'deficits' and trade 'surpluses' are ultimately monetary?"

and

"wouldn't two countries whose currency valuations were moving perfectly in tandem have a neutral balance of trade?"

Re: Help with Balance of Trade

Andris Birkmanis — Thu, 08 Nov 2012 17:09:01 GMT

what else would someone do with foreign currency other than buy products from the homeland of said currency

I think buying property abroad does not count as imports - this is one possible sink for foreign currency.

Help with Balance of Trade

Jargon — Thu, 08 Nov 2012 16:38:56 GMT

I vaguely recall declaring Hazlitt and possibly others saying that exports ultimately equal imports and vise versa, because what else would someone do with foreign currency other than buy products from the homeland of said currency. Does this then mean that issues of trade 'deficits' and trade 'surpluses' are ultimately monetary? By this logic, wouldn't two countries whose currency valuations were moving perfectly in tandem have a neutral balance of trade?