New Rules: Balance of Trade vs. Balance of Payments and National Debt

For certain there is one professional field of study and practice that produces more statistics, charts and prophesies than all others combined . . . that field is economics.  To be clear, this short comment does not intend to address the multiple variations in opinions of economists.

Here is a to-the-point presentation of what economists are saying . . . and recognizes the outcomes. Read the articles and sources linked-to herein for additional information.

Comparing by using pictures:

U.S. Balance of Trade vs. China Balance of Trade

“Since 1995, China has been recording consistent trade surpluses which from 2004 to 2009 has increased 10 times.” In 2014, the biggest trade surpluses were recorded with Hong Kong, the United States, Netherlands, Vietnam and the United Kingdom.

China recorded trade deficits with Taiwan, South Korea, Australia and Germany. China's trade surplus at new record high in February, while imports into China declined by 20.5 percent year-on-year In January 2015.

Balance of Trade

The difference between the value of exports and the value of imports.

When the value of exports exceeds that of imports, a country is said to have a trade surplus.

When the value of imports exceeds that of exports, a country is said to have a trade deficit.

Balance of Trade

There is disagreement on the impact of the balance of trade in an economy. Economists believe that some deficit is good, however too much for a lengthy period of time lowers the GDP of a country, and over time can lead to unemployment. Lengthy unemployment leads to loss of skills and the inability to produce products and services domestically.

Other economists believe that the balance of trade has little impact, because the more international trade occurs, the more likely it is that foreign countries will invest the surplus of funds earned in the deficit countries securities. . . creating a balance of payments.

Balance of Payments:

The record of money payments between one country and other countries. Balance of payments is more inclusive than balance of trade because balance of payments comprises foreign investment, loans, and other cash flows as well as payments for goods and services.

A country's balance of payments has a significant effect on its currency value in relation to other currencies. It is of particular interest to individuals who own foreign investments or who own domestic investments in companies dependent upon exports.

Balance of Payments

National Debt:

The total value of all outstanding Treasury bills, notes, and bonds that the federal government owes investors is referred to as the national debt.

The government holds some of this debt itself, in accounts such as the Social Security, Medicare, Unemployment Insurance, and Highway, Airport and Airway Trust Funds. The rest is held by individual and institutional investors, both domestic and international, or by overseas governments.

There is a debt ceiling imposed by Congress, but it is typically raised when outstanding debt approaches that level.

Interest on the national debt is a major item in the federal budget, but the national debt is not the same as the federal budget deficit. The deficit is the amount by which federal spending exceeds federal income in a fiscal year.

National Debt

US Debt Clock:

Explore debt by state, world countries and the time machine. Issues to review are the total US National Debt vs. US Federal Tax Revenue.

Check the population data and compare, with special attention to:

US Work Force 2015 vs. 2000

Not in Labor Force 2015 vs. 2000

US Debt Clock

New Rules: U.S. Economy and International Trade:

The updated chart and posting summarize the long-term faced by the US Economy. Many mistakes have been made . . . can they be corrected?

US Economy and International Trade:

New Rules: Economics For Politicians:

How disintermediation of the supply chain and offshoring manufacturing has resulted in the loss of tax revenue and fees.

Economics for Politicians

Summary:

No matter how a loaf of bread is sliced, eventually the end of the loaf is reached. For the US economy, the end of the loaf appears to have been reached long ago.

Somehow, decisions by congress and the administration during the 1996-2000 period, set in place the status of permanent normal trade relations (PNTR) for China. Congress believed it would benefit the US economy. However, the benefit is not in sight!

Increased purchase of imports may translate to other governments purchasing U.S. Securities and investments via loans and other debt instruments. In an unusual way, this provides funds for government to pay social transfer costs of unemployment caused by the imbalance of trade.

However, it has also lead to increased unemployment, food stamps, medical welfare, loss of personal pride, loss of the ability to learn skills, decreased home valuations, negative investment interest, increased immigration competing for fewer jobs, and increasing demonstrations in the streets.

Presently, those are the facts, not prophesies.

New Rules: Get Back to America First!

New Rules: Purpose and Definitions

This posting contains terms and definitions which help the reader understand subjects contained in following postings. This page will be updated with additional terms and definitions as discussions are posted to this category.

Purpose of the New Rules Category:

New Rules explains WHY specific problems exist within the US economic, legal, and political systems. Explanations are above-board and direct. Put it in simple terms, the entries are BLUNT.

The indisputable fact is the U.S. is NOT leading anything . . . at least in the correct direction.

Leadership of the nation is as Dracula, sucking on the blood of the nation. This may seem an exaggeration, however, you are not asked to be persuaded by this writer. You are asked to look around and observe . . . then you decide and participate in your community as appropriate.

The discussion is based on logical and understandable principles. NO group or individual is singled out or judged.

Terms to review:

Ignorance: A person who lacks knowledge, is unaware of something or chooses to subjectively ignore information.

Stupidity: A quality or state of being stupid, or an act or idea that exhibits properties of being stupid . . . an idiot (idiocy). “Idiots” are seen as having bad judgment in public and political matters.

How these terms apply:

An example of a current issue, healthcare, will demonstrate the application of these three terms:

1). A representative without knowledge of medicine or the contents of the healthcare bill may be categorized as ignorant on the subject.

2). A representative preparing to vote on the healthcare bill without pursuing knowledge and understanding of the bill, may be categorized as stupid.

3). A representative who is both ignorant of the subject and did not pursue knowledge and understanding prior to voting may be categorized as an idiot . . . Idiots” are seen as having bad judgment in public and political matters.

Therefore, it is possible for a representative in this case to be ignorant, stupid and an idiot at the same time.

The level of education or years of experience are not a consideration when observing individual or group actions.

Highly educated and experienced individuals and groups can take either correct or incorrect actions;

While under-educated and inexperienced individuals and groups can also take either correct or incorrect actions on the same issue.

Summary:

Issues to be addressed are listed in the “New Rules” category.

What is to be demonstrated for the reader is that rules enacted as legislation or regulation rarely consider the consequences of the act, and are rarely in response to the cause of an issue.

Far too often actions taken address a symptom, not a cause, and do not improve a situation.

New Rules: U.S. Economy and International Trade

Updated: 1/7/2017

This update establishes a minimal lost opportunity cost of 24 trillion dollars in GDP not earned; and minimal loss of 12 trillion dollars in taxes and fees not collected, for the period of 1992-2016. Reason for the update is to provide an educational experience for the reader rather than an informational posting.

Note: Forward looking data referenced in the posting may continue to change over time.

Legislation and regulation rarely consider the consequences of the act, and are rarely in response to the cause of an issue.

Background: The U.S. congress and administration have, over the past twenty-four years, enacted a series of well intentioned, however, questionable efforts to improve the quality of life for citizens.

What could possibly go wrong? It appears the combination of these activities may have been responsible for creating a false and unsustainable economy, resulting in the current international financial crises.

This blog entry is brief and serves as the foundation for understanding the cause and effect of many of the current problems in the economy, government and educational systems.

U.S. Exports vs: Imports 1992-2016

a.) The chart scale on the left is in 500 billion dollar increments. Years 1992-1998 indicate mild growth in the trade deficit.

b.) Exceptions during this later period are 2001 (9/11) and the world financial crises of 2009 which slowed global trade overall.

b.) Overall, years 1999-2014 indicate increasing growth in both imports and exports, with the exception of 2015-2016 indicating a slowing trend. However, the total accumulated trade deficit is increasing.

Exports vs: Imports Effect on GDP
Exports vs: Imports by Year

1. Decisions by congress and the administration during the 1992-2000 period set in place the status of Permanent Normal Trade Relations (PNTR) with China. This is a legal designation in the United States for free trade with a foreign nation. In the U.S. the name was changed from Most Favored Nation (MFN) to PNTR in 1998.

2. This action has resulted in an increasing trade deficit with china Updated 7/20/2018

Total import imbalance (imports exceeds exports) for the period is 9 trillion, 975 billion, 399 million dollars. U.S. International Trade in Goods and Services published by the U.S. Census Bureau.

Dr. Ben Bernanke previous chairman and a member of the Board of Governors of the Federal Reserve System stated, given current low interest rates, the Money Multiplier Effect (MMF)in the U.S. is running at the rate of 800% per year. Updated August 6, 2014.

If correct, this would indicate for every $100 deposited in a bank and loaned to a borrower, it will create $800 more dollars as it is passes between merchants, additional banks for loans and customers. In addition, at every transaction, taxes and fees are collected in the form of sales and income tax which are paid to city, state and the federal government.

Theoretically this is possible given the current interest rate established by The Federal Reserve, however, it is unlikely. Historically, a rate over 250% had been the norm during the period of 1990-1995. Beginning around 1995, a decline in the MMF occurred, culminating in a 100% and lower MMF since the recent financial collapse.

It should be noted that prior to 1975, the U.S. had a trade surplus. From that period thru 1990, a much higher MMF of +300% was experienced. As the U.S. began providing temporary MFN status to China in 1992 and on to permanent PNTR status, the MMF dropped considerably. This decline in MMF occurred in conjunction with the escalating trade deficit, loss of tax revenue and manufacturing jobs, and an overall high unemployment rate.

The theoretical MMF is derived through a process referred to as Fractional Reserve Banking.

1. Industrial capacity, utilization of manufacturing facilities during April of 2012 is estimated to be 79.2% of the current standing capacity. Keep in mind this is the percentage utilization of the current standing capacity. Historical utilization rates average around 85%. Standing capacity has continued to decline since 1975, the first year the U.S. experienced a trade deficit. Since then, maximum capacity has continued to erode with many manufacturing and service facilities moved to foreign markets.

Summary of the banking problem:

Currently, banks face unknown costs coupled with reduced purchasing power of retail customers, unknown costs for industrial customers, and an impending collapse of international financial markets. For government to insist that banks loan into this financial fiasco would be a repeat of government demanding banks loan into another sub-prime mess . . . which government did!

What is the central concern of government today . . . increasing banking regulation . . . what about the trade deficit which is the root cause of the problem? Oh, the U.S. no longer controls that . . . the WTO does . . . is the U.S. now a member of the EU? Is the center of U.S. government now the European Parliament?

Summary evaluation of the data:

Information in the chart and tables above has been available for several years, and what action was taken to stem the flow of wealth from the U.S. to emerging nations?

Economists and academics have been pushing for more exports to balance the trade deficit. Well, they are getting more exports, but the delta between imports and exports has been growing larger. You frequently hear a monthly deficit has narrowed. What about the total deficit? The U.S. has been exporting mostly capital equipment used to build infrastructure for producing products for export.

The U.S. imports most of the consumer products from one nation. What is that nations income level per capita? You would think that several years ago, economists and politicians would have gotten the message that the U.S. can’t match the imports because of the inability of potential . . .  if you want to call them “potential” customers . . . to buy U.S. exports. Is it realistic to believe they will be buying imports or making their own? When will the concept of Balanced Trade be addressed?

Consider this: The $9,975,399 (that is 9 trillion, 975 billion and 399 million) at the case MMF of 250% would have exceeded over $24,938,498 . . . that’s 24 trillion and 975 billion more dollars of domestic spending, and $12,469,248 . . . that’s 12 trillion and 248 billion more dollars in taxes and a heck of a lot more jobs. But the truth is it would have been much higher than that given annual compounding. Keep in mind this is minimal and reflects a factor based on 1992-1995.

In short, imports are very likely more expensive than domestically produced goods and services given the need for government to pay for unemployment insurance, healthcare, food stamps, etc.

What do notables in economics have to say about trade deficits.

A series of links on “Balanced Trade” for your review:

Wikipedia | Ideal Taxes Association | American Thinker.

What Washington and Wall Street did not see coming, many others did.

New Rules: Recovering From Disaster

Recovering America from economic, legal and political disaster. Note: Links to references appear throughout the log.

Rarely has the time been more appropriate than now, to exclaim, “America may be at the peak of the disintegration phase of a nation.” Was George Santayana correct when he stated “Those who cannot remember the past are condemned to repeat it.”  Possibly Santayana’s description of fanaticism as “redoubling your effort after you’ve forgotten your aim” is appropriate today.

The pivotal point for national disintegration may depend on the manner in which the current healthcare reform issue is resolved. Will America retreat from the movement towards public resolution of the issue, or pursue a commercial solution?

Many of America’s best achievements have been realized through public projects requiring massive assistance. Successes in medicine, communications, transportation and energy relied on public projects, and today they have advanced to become both public and commercial endeavors.

Have Americans, specifically economists, lawyers and politicians  forgotten, or possibly they never knew, how the wealth of a nation is created, and that wealth provides opportunity and quality of life for the citizens? Many of the issues Americans face today reflect ignorance of the process and are responsible for the following:

  • Failed educational systems.
  • Fewer employment opportunities.
  • High crime rates.
  • Failing businesses.
  • Failed financial institutions.
  • Failed stock markets.
  • Failed city governments.
  • Failed state governments.
  • Failed federal government.
  • Failing international relations.

There is a common cause for these issues. It is amazing that the intelligence of a nation would not discuss and address the cause of failure. Possibly this is the key to the failure of all nations in history. There is no substitute for free enterprise, albeit with some limitations, be it entrepreneurship or capitalism. Government can support, but not replace free enterprise, except in a failed nation.

These issues and more are addressed in the category titled “New Rules” in the log.

New Rules: Economics For Politicians

Updated: 1/10/2017

Economics for politicians explains and shows in easy to understand terms and pictures why sufficient tax revenues are not available to support current city, state and national government activities. The presentation is non-verbose and easy to understand. It's a little like a UPS commercial . . . short and to the point. More elaborate explanations would be just that . . . more elaborate . . . and arrive at the same conclusion.

Citizens can earn their own . . . health care . . . social security . . . retirement and additional benefits if businesses and government analyze, and plan correctly. Of course follow-through is important.

Support for education should not be a problem. However, sometimes what you have learned and been told is not correct . . . surprise . . . surprise. Higher education and business believe global trade is a good thing. They are correct, however, incomplete. The failure is to consider balanced trade.

Solving the current problem of a major shortfall in tax revenue is a non-partisan issue; and, until that is recognized, there will be no solution.

Solving the current problem is NOT a union issue . . . although Skinnerian conditioning would have everyone believing it is. It is not the concept of unions, but the failure of unions to support the proper objectives. The subject of unions is a candidate for a separate posting. The only question to be asked and answered is, "where will the money come from?" When the response to the question is another tax, government must remove roadblocks to business success.

Business must be able to generate additional profits to pay new taxes . . . which may mean lowering taxes. This should not include turning on the printing press . . . what it means is moving to expansion in some way that is not inflationary. Until business in conjunction with government can design the solution . . . NO taxes should be levied. In a normal domestic market where goods and services are produced and nearly full employment is realized, the following picture represents the process where incomes are good and tax revenues and fees are sufficient to provide for the needs of citizens and government.

The full domestic production sequence shown below ensures there is a balanced use of resources and the desired/required availability of income and tax revenue to support a prosperous national economy.

Full Domestic Production

Planners have clearly failed to analyze the global situation correctly. During the past several years, this failure has resulted in the loss (conservative) of  twenty-two trillion dollars in GDP and eleven trillion dollars in tax revenues (end of 2014). Where is the trade imbalance centered? Mostly in Asia and China.

How many jobs have been lost in the U.S. by not maintaining balanced trade? For every manufacturing job lost . . . four additional support jobs in logistics, industrial marketing, service and the community tied to that job are also lost. The argument is frequently advanced that imports are cheaper . . . that is not correct. After the wealth has been transferred to exporting countries there is nothing left for government services except to turn on the printing press. Once again “government didn’t see it coming!”

Although some will advance the proposition that the U.S. can increase exports to balance trade . . . this also is not correct. Frequently the statement is made that exports have increased . . . yes, this is true, but exports have not and will not, make a dent in the 22 trillion dollars of GDP lost to the trade imbalance. U.S. retail stores are a lot like your local hamburger palace. You just drive in and pick up what arrived at the import dock in Los Angeles or some other major port . . . no home cooking!

The huge trade deficit accumulated over the years was caused by unbalanced trade agreements. In short, government is creating the problem . . . sound familiar . . . same for banking . . . Wall Street, Fannie and Freddie.

Unbalanced Global Trade

As the U.S. transitioned from sole reliance on an agricultural economy to an expanding manufacturing based economy,  rapid growth in factories, cities, roads,  railroads, airports, bridges, communications, retail, healthcare, recreation and additional areas occurred to support the effort. This activity created wealth and a higher quality of life and an expanding middle-class. Education and experience in all fields of employment, professional and skilled trades expanded during the 20th century.

As reliance on global trade grew, the need to produce domestically diminished as import activity increased. The result has been vacated factories, reduction in the need for skilled professionals and trades, high unemployment rates, loss of tax revenue and fees, degrading of infrastructure as it stood idle and not producing tax revenue or fees. Diminished quality of life was accompanied by lost opportunities and increased crime.  Countries exporting to the U.S. have benefited greatly at domestic expense.

Balancing trade will improve outcomes for citizens, however, looking forward, new technologies and methods present additional challenges . . .  more can be done with less . . . and new professional and skilled trades will need to be created . . . or evolve. Evaluation of what constitutes valuable work or enterprise must be considered worth reward. It’s simple, if there is no income, there is no expenditure, and there is no economy. Deficit borrowing to reward the unemployed is a diminishing solution as national debts increase. What constitutes work will and must be reevaluated.