The Gaming Den

Trade Restrictions and Capital controls would literally cripple the US economy. You want to see all those Multinational formally US companies completely vanish?

If the US goes Isolatinist, it will hurt the US more than anyone else.

Something like Buffet's import certificates would balance trade, but are hardly isolationists. The multinationals wouldn't leave, it changes nothing about the fact that the US has the best universities in the world with very decent infrastructure.

Of course balancing trade would hurt the US in the short term, as I said ... they essentially get shit for free. It's just a dangerously unstable way to run a run a global economy though (or internal economy for that matter in the EU's case).

I don't know how or why you think it is "dangerously" unstable. If the world loses faith in dollars, they will try to buy US stuff with them at the reduced value that necessarily came just before they decided to stop hording dollars. Then ultimately that shit has to buy US products. I mean, individuals can try to buy gold or something, but that just puts the money into the hands of someone else with the same dilemma.

The US trade imbalance is a huge insurance policy for the United States. If the dollar loses prestige, the US gets a huge demand surge that drives employment up and softens the blow of whatever catastrophe caused the US to lose prestige in the first place.

The worst thing that could happen to the US is happening right now. It's the thing where the economy is in the shit box in a perpetual way and the US isn't losing prestige relative to everyone else. So the rest of the world just keeps hording dollars and our unemployment stays uncomfortably high. If people were running to the "safety" of Euros or some shit, our unemployment problems would go away.

It's the perfect scam. If people want our dollars, they give us stuff at discounted rates in order to put our green pieces of paper into vaults. And if we stumble severely to the point where people don't want our dollars, the "value" of the dollar tanks and then they stimulate our economy tremendously in exchange for much smaller amounts of resources than we got in the first place. Supply and Demand is on the US side no matter which direction the arrow is going!

-Username17

FrankTrollman wrote:I don't know how or why you think it is "dangerously" unstable. If the world loses faith in dollars, they will try to buy US stuff with them at the reduced value that necessarily came just before they decided to stop hording dollars.

Which would mean high price inflation and corresponding wage deflation inside the US ...

Having a trade deficit is destabilizing exactly because shifting to a sudden trade surplus if your country isn't adapted to it is a really bad idea. China maintains it trade surplus by keeping it's wages and standards of living artificially low, if the US was suddenly forced into trade surplus it would have to find a way to actually pay for the foreign natural resources necessary to produce it ... for that it would still need comparative advantage regardless of the dollar, which would mean a massive decrease in standards of living.

Unless you think they can do it all with IP.

I mean, individuals can try to buy gold or something, but that just puts the money into the hands of someone else with the same dilemma.

Gold isn't too dangerous unless it turns back into the reserve currency, just selling all your gold just before would be painful. The more dangerous thing in a neo-liberal world is simply getting bought out, getting forced into the same position as Ireland. The economy becomes basically owned by foreigners, with profits being skimmed off and the trade surplus never even paying off your debt. A perpetual trade surplus with suppressed standards of living, in a sane world of course government would use fiscal policy to bring the current account back into balance ... but neo-liberalism is nothing if not insane.

The US trade imbalance is a huge insurance policy for the United States. If the dollar loses prestige, the US gets a huge demand surge that drives employment up and softens the blow of whatever catastrophe caused the US to lose prestige in the first place.

Employment is nice, not being working poor is also nice.

Frank: What would cause the US economy to fail? If a trade defecit isn't gonig to do it, and a trade surplus isn't going to do it, and inflation isn't going to do it, what would ruin the economy?

Grek wrote:Frank: What would cause the US economy to fail? If a trade defecit isn't gonig to do it, and a trade surplus isn't going to do it, and inflation isn't going to do it, what would ruin the economy?

Stagnation. Basically the US is the biggest shark, as long as it keeps moving it can eat anything. If on the other hand, the US gets caught in a perpetuating paradox of thrift wherein every single person starts trying to save and the government tries to save, and then the economy shrinks continuously, that could be a self perpetuating problem that tanks the US economy. Since my spending is your income and your spending is my income, if everyone spends less then everyone earns less. It's a basic property of arithmetic.

So if someone were to apply a massive "savings shock" to the US economy and leave it like that, you could get into a situation where GDP shrank on a per capita basis every year until the system fell apart. Like what has happened in Japan for the last twenty years except without the government acting as a borrower of last resort to keep total spending from falling disastrously. So instead of having merely a two decade long "lost decade" with low growth and increasing government debts, you have a "disastrous tailspin" where the government tries and fails to put a break on debt accumulation while the economy goes from slow growth to negative growth. Like what would have happened if the Tories were in power in the UK when the financial crisis actually hit.

Alternate scenario: we decide to do something fucking stupid like go onto a gold standard or something and then suddenly there isn't enough money in the whole world to run our economy and everything falls apart in rapid order.

Alternate scenario: some truly game changing technology is developed in, say Kazakhstan and suddenly they have fusion power and we don't and all production of everything moves to Central Asia.

Alternate scenario: we make contact with aliens and suddenly instead of being the biggest power on Earth we're the toughest guy in the bar and the aliens smack us around just to put the rest of the countries in line.

There are lots of things that could make us collapse economically. But "we do exactly the thing that has been working pretty fucking well for the last seventy years or so" isn't on that list.

-Username17

30 of which the US had oil and 40 of which it got it at discounted prices ... it works as long as it works, but it's not entirely in the hands of the US government whether it keeps working.

MfA, are you ever going to make the case for why a trade surplus or deficit is in of itself bad for an economy?

A trade surplus/deficit number is like finding out that someone cut or expanded their annual household budget by 30,000 pounds for that year. Is that a good or a bad thing? If someone cut their budget by that amount it may mark someone losing their job. Or that their twin daughters got a sweet-ass sports scholarship and left the house to go to college. If someone is expecting to drop another 30,000 pounds that year it could mean that they're doing something stupid like buying a car with golden spinning rims or that they got a promotion or they're in deep to the mob.

It's a meaningless worry when it's by itself. If/when the euro crashes the U.S. trade deficit will probably go positive for a period of time as countries go back to their suddenly devalued currencies and the dollar becomes a fuckton stronger. That's cold comfort of course as productivity and employment will completely overshadow that meaningless 'statistic'.

MfA wrote:30 of which the US had oil and 40 of which it got it at discounted prices ... it works as long as it works, but it's not entirely in the hands of the US government whether it keeps working.

Sure, it's possible, even likely for the U.S. to not be able to keep oil prices as low as they need to be. Arab Spring could totally spread to Saudi Arabia.

The point is that unless something really weird happens like, oh, Turkey claiming that they squirreled away some of the nuclear missiles from the JFK administrations and kicked it up a notch like Emeril and by the way they've been in a double-secret defense pact with Russia and the Ukraine it's not going to hurt the U.S. disproportionately. If you have the lion's share of the pie but the pizza turns out to be a medium instead of a large unless someone else simultaneously increased their share of the pie you still have the lion's share. You still get less pizza, which is a concern, but if you just want to lord over how much more pizza you got then everyone else then big deal! Their share is smaller, too.

MfA wrote:Which would mean high price inflation and corresponding wage deflation inside the US ...

Unless you had high unemployment and a liquidity trap, like the U.S. current does. And what wage deflation? You mean the wage deflation from inflation? I guess if you're a dumbass like the ECB and think that 3% inflation at 8.5-9% unemployment is better than 6% inflation and 4-5% unemployment.

MfA wrote:Employment is nice, not being working poor is also nice.

If you don't have a job, you're not just working poor: you're lumpenproletariat. Why is that preferable?

Lago PARANOIA wrote:If you don't have a job, you're not just working poor: you're lumpenproletariat. Why is that preferable?

I dunno, why is it? It's not my assertion after all.

As for wage deflation being necessary in the US ... I'm not saying it isn't, I'm just saying that shifting away from subsidized consumption (ie. trade deficits) is not going to be a walk in the park. It will mean a decrease in living standards, even more so if the US sticks to a neo-liberal policy (because the returning dollars will buy the economy right out from under US citizens).

Sorry, didn't see your post.

MfA wrote:I'm just saying that shifting away from subsidized consumption (ie. trade deficits) is not going to be a walk in the park. It will mean a decrease in living standards, even more so if the US sticks to a neo-liberal policy (because the returning dollars will buy the economy right out from under US citizens).

Eh, even in the worst case scenario I doubt it'd be that bad. I doubt that any of the Federal Reserve chairmen in recent memory (Volcker, Greenspan, Bernanke) would just sit around with their thumbs up their asses if that was to happen. I suppose it's possible if we did something stupid like nominate an Austrian to replace Bernanke, but not likely. And even so, Congress and to a much lesser extent the President can just destroy some of the returning dollars through taxes. And hey, guess what happens in 2012?

Capital gains taxes will increase? Property taxes on large businesses will increase? Corporate taxes will increase?

Taxes increasing on the American consumption class won't really help in balancing current accounts if the US gets positioned into Ireland's role ... now the US is of course far away from that, so they represent defacto wage deflation instead which the US needs at the moment ... but still, the US hasn't raised taxes where it counts for (foreign) wealth accumulation in decades.

Hold on, you're getting ahead of me here. Here's the chain of events in best to worst case scenario:

1.) The chickens have to come home to roost on the trade deficit. Is there any reason to believe that this will happen? I don't see why not; there's no reason to believe that when India, Brazil, and China finishes industrializing that someone else is going to take up the manufacturing mantle. I mean there's no reason to believe that they won't either, but all the same. Otherwise dollars will just end up flowing back in just in time to get send out to South America or Africa.

2.) Let's assume 1, though. This means that while the U.S. is experiencing high employment people decide that the dollar isn't worth much and money starts coming back into the country. If it's a scenario of low employment (meaning an artificial restriction on demand) then this is actually beneficial. Either you get caught at step one or people just buy shit internal to the country.

3.) Now let's assume 1 and 2 have come to pass. The money comes back in but the economy is close to full employment already so instead of increasing aggregate demand it just causes inflation. This means that the Fed notices this and then buys back a bunch of bonds to 'destroy' the money, curbing inflation. This isn't guaranteed, of course, but most Keynesians and Monetarists would in fact actually do that. Hell, pretty much everyone (including remnants of the Harding administration) elected to the Federal Reserve board in the U.S. would realize that is what would be needed to be done.

4.) But let's say that for whatever reason the Fed doesn't act quickly to fight inflation in an economy with close to full employment. Which would be weird as hell, since this would mean that the overclass has to suddenly not care about inflation (and as we've seen in the Europe debacle, the overclass will care about inflation even when unemployment is high), but whatever. Like I said, it might happen if the Fed is a secret Austrian or something. In that case Congress can and probably will just increase taxes to destroy the money and fight inflation. They might not end up doing that actually because the Republican party has clearly gone off of the rails WRT taxes. But then again a lot of them are making stupid noise like the poor don't have enough 'skin in the game' so they might actually have the political will to do so.

Now if none of the above occurs then the returning dollars will cause wage deflation. I'm not saying that it's impossible, just really implausible. Considering the white-knuckled fear that the contemporary upper class has of inflation if things got to step four Ben Bernanke or whoever was running the Fed would wake up with a horse's head in their bed.

Lago PARANOIA wrote:1.) The chickens have to come home to roost on the trade deficit. Is there any reason to believe that this will happen? I don't see why not; there's no reason to believe that when India, Brazil, and China finishes industrializing that someone else is going to take up the manufacturing mantle. I mean there's no reason to believe that they won't either, but all the same. Otherwise dollars will just end up flowing back in just in time to get send out to South America or Africa.

If the US inflates and the dollar loses reserve currency status why wouldn't those new industrializing countries simply export to China instead?

Mercantilism only makes sense if the trading partner has an overvalued currency for some reason or if it has an industrial base to off shore, allowing you to quickly gain knowhow and machinery ... China will have pretty much removed the latter as far as labour intensive industry goes when it's finally ready to let the Yuan float. At which point the only reason to maintain a trade surplus with the US would be the fact that since Saudi Arabia is afraid of Iran it has pegged to the dollar in exchange for protection.

2.) Let's assume 1, though. This means that while the U.S. is experiencing high employment

Why would there be high employment? The US being forced into trade balance is completely equivalent to a massive supply shock, the inflation resulting from it doesn't necessarily create employment.

If the dollar collapsed tomorrow unemployment would only get worse ...

people decide that the dollar isn't worth much and money starts coming back into the country. If it's a scenario of low employment (meaning an artificial restriction on demand) then this is actually beneficial. Either you get caught at step one or people just buy shit internal to the country.

They buy shit, they don't necessarily pay people to make shit ... if they have to let wages deflate first so the US actually becomes competitive, then that is what they will do.

There is lots of shit to buy in the US which won't generate employment ... investors will only spend on rent seeking investments until the US is competitive again.

3.) Now let's assume 1 and 2 have come to pass. The money comes back in but the economy is close to full employment already so instead of increasing aggregate demand it just causes inflation. This means that the Fed notices this and then buys back a bunch of bonds to 'destroy' the money, curbing inflation.

But not necessarily wage deflation, if wages have to deflate because the US lacks competitiveness in a trade balance situation then they will deflate ...

There is fundamentally nothing which inflation can accomplish which default and wage adjustments can't accomplish ... inflation is simply an easier route most of the time, but it's not magic. If you can not afford the oil necessary for your standard of living inflation won't change a damn thing about that.

MfA wrote:Why would there be high employment? The US being forced into trade balance is completely equivalent to a massive supply shock, the inflation resulting from it doesn't necessarily create employment.

Whoa there. Are you seriously saying that an increase in Demand does not create employment on the grounds that it is equivalent to a reduction in Supply? That is probably the dumbest thing you have said about economics.

-Username17

FrankTrollman wrote:I don't know how or why you think it is "dangerously" unstable. If the world loses faith in dollars, they will try to buy US stuff with them at the reduced value that necessarily came just before they decided to stop hording dollars. Then ultimately that shit has to buy US products. I mean, individuals can try to buy gold or something, but that just puts the money into the hands of someone else with the same dilemma.

The US trade imbalance is a huge insurance policy for the United States. If the dollar loses prestige, the US gets a huge demand surge that drives employment up and softens the blow of whatever catastrophe caused the US to lose prestige in the first place.

The worst thing that could happen to the US is happening right now. It's the thing where the economy is in the shit box in a perpetual way and the US isn't losing prestige relative to everyone else. So the rest of the world just keeps hording dollars and our unemployment stays uncomfortably high. If people were running to the "safety" of Euros or some shit, our unemployment problems would go away.

It's the perfect scam. If people want our dollars, they give us stuff at discounted rates in order to put our green pieces of paper into vaults. And if we stumble severely to the point where people don't want our dollars, the "value" of the dollar tanks and then they stimulate our economy tremendously in exchange for much smaller amounts of resources than we got in the first place. Supply and Demand is on the US side no matter which direction the arrow is going!

-Username17

Wait, wait, wait...

How is this possible? Why are people selling wares to America at discount rates? The dollar is just money and it hold no inherent value over actual real wares. I kinda get the idea that if the commodity flow dries up then other companies from within America will rise up to fill the void but what about wares that America can't actually produce on its own? Wouldn't that still reduce the quality of living?

MfA wrote: If the US inflates and the dollar loses reserve currency status why wouldn't those new industrializing countries simply export to China instead?

Because it won't matter? Because the dollar losing reserve currency status means that exports will go up, unless your productivity is so shitty that even a devaluation of currency won't lift you out of the hole. Considering that the U.S. still exports a fuckton, I don't see this being the case.

MfA wrote: Why would there be high employment? The US being forced into trade balance is completely equivalent to a massive supply shock, the inflation resulting from it doesn't necessarily create employment.

???

Dude, what are you even talking about? There's been lengthy unemployment in the States for a couple of years, it's almost guaranteed that the economy is not running at capacity -otherwise there would be higher employment. Going from negative to positive all of a sudden is bad if you're at full employment, but... that's not the case.

MfA wrote: They buy shit, they don't necessarily pay people to make shit ... if they have to let wages deflate first so the US actually becomes competitive, then that is what they will do.

There is lots of shit to buy in the US which won't generate employment ... investors will only spend on rent seeking investments until the US is competitive again.

That has no effect on exports. If you're saying that it doesn't matter because the economy is at a point where only a few people need to pull the levers of production and all this will do is just concentrate wealth in the hands of the people who do have jobs, well:

1.) I don't think that this is necessarily the case. There a still a bunch of jobs that still need to be done by humans. I agree that the long term trend is that fewer and fewer people will need to participate in the economy to put it at full production, but I really doubt that 8.3% unemployment is the new NAIRU. So even if Wendy's or Barnes and Nobles can't in of themselves compete on the global market they will be owned by conglomerates who own one or more of the internationally competitive productive industries. Meaning that when they get money for their exports, they can pay the workers who program video games or jabber on FOX or whatever the fuck.

2.) Even if you accept 1, that's a problem of income inequality and/or worker obsolescence and needs a different solution. I mean, seriously, if you don't want to increase production and exports because that means that some people won't be hired back to the factory anyway that still doesn't help the unemployed people out. I mean it helps them out a little because the money that they squirreled away will go further, but they still don't have jobs. It's better policy to just boost production and redistribute the resources after the fact rather than just circle-jerking down the death spiral of poverty.

MfA wrote: But not necessarily wage deflation, if wages have to deflate because the US lacks competitiveness in a trade balance situation then they will deflate ...

What competitiveness in a trade balance situation? If you have high employment and a trade deficit (or surplus) you are either 'winning' the competition for what it's worth if your partner has high unemployment or you're engaged in beautiful symbiosis (if your partner has high employment as well).

Frank gave you a pretty good analogy of what that means. Trade balance is a statistic that's only meaningful in context. It's like saying 'I gained 20 pounds of water and fat'. Is that a good thing or a bad thing? If you're already morbidly obese it's bad, but if you're a concentration camp survivor that's very good.

Dominicus wrote: I kinda get the idea that if the commodity flow dries up then other companies from within America will rise up to fill the void but what about wares that America can't actually produce on its own? Wouldn't that still reduce the quality of living?

Long and short of it is that trade balance is rarely A->B all of the time. It's more like A->B->C->A->B. As long as people either want your money or want your goods, you're doing just ducky. Because if people want your goods, you can use the money they give you to get someone else's products. Similarly, if they want your money then you get goods and you can either sell them to someone else or use them to grow the economy higher/increase productivity.

If something happens so that the circulation of money stops then it doesn't matter where you are in that chain. You're fucked because you either don't get any more money (and can't get anything else once it's gone) or you have a bunch of money and no one wants to sell you anything.

In this light, it doesn't matter what you're producing as long as they want it. Hollywood Movies for instance don't fill bellies, dig ditches, move trains, erect houses, etc.. but if someone is willing to pay you for those movies you can then use that Hollywood Movie money to buy oranges, buy bullet trains, hire people to build houses, etc.. And as long as that Hollywood Movie money keeps coming in it doesn't matter that you don't produce any other good because you can just buy it.

Now. You might be asking yourself 'well, what if no one wants my filthy Hollywood movies anymore'? That's when you're fucked. Or you might not be. If your economy is robust enough you can either switch to some other product or service -- or if you really have the chops for it, you can just invent one. Then that's when you start selling video games. Or you open up the coal mines. Or whatever. It depends on what the government and/or capitalists have been doing in the meanwhile and what the country has available but in this brave new world people will buy things that are purely or mostly of human capital like 'banking' or 'tourism' or 'DRM'.

But that's not a trade balance concern. I mean if you're producing something robust like gold or steel or cotton you should probably be less worried about the house of cards tumbling down than if your product is something like, say, centrifugal Bumble Puppies. But that gravy train can potentially derail for pretty much anything. If depends on what you were doing while you were on the train. And regardless it's still better to ride the train than to never get on it at all because you're worried if it will one day derail.

Dominicius wrote: Wait, wait, wait...

How is this possible? Why are people selling wares to America at discount rates? The dollar is just money and it hold no inherent value over actual real wares. I kinda get the idea that if the commodity flow dries up then other companies from within America will rise up to fill the void but what about wares that America can't actually produce on its own? Wouldn't that still reduce the quality of living?

A Trade Deficit means that more money is flowing out of the country than in. That strongly implies that more goods are flowing into the country than out. With China, that's explicit, in that they artificially maintain a low value of their currency in order to act as a heavy tariff on imports and a heavy subsidy on exports (if you sell foreign goods in China you get less foreign currency than the effective cost to Chinese people, if you buy Chinese goods it costs less of your money than the amount the Chinese producers actually receive). But our trade deficit is not just with China, it is overall. And most countries aren't doing an elaborate scheme to hoard dollars, it's just happening anyway.

What this means is that if you're from a country that uses Ghanaian Cedis or Chilean Pesos or some damn thing, you'd rather have American Dollars. And so when people buy stuff from you with Ghanaian Cedis and American Dollars, you have a mix of currency. And because you can choose which of those currencies you spend, you're normally going to spend your Ghanaian Cedis first and your American Dollars last. Which makes sense: bad money drives out good.

But from the standpoint of the United States, what that means is that they trade green pieces of paper away for actual goods and services and then they don't ever have to give real goods and services back for those green pieces of paper. It's a promise of future goods and services that they don't ever have to make good on.

In order for the US to have to actually give something for those green pieces of paper, people would have to start spending them. And that means that the American Dollar would have to start being something that people wanted to hold onto less than an Argentine Peso or an Indian Rupee. It's possible to imagine an event that would cause that, but it's hard to imagine an event that would cause that where the US simultaneously did not have a lot of unemployment.

-Username17

What I really want to know is how and why people see trade surpluses as a generic moral good and people see trade deficits as a generic moral bad.

If the flow of currency and goods slow or stop, which is the real concern, having a trade surplus or deficit isn't going to help you. It's only bad if you have a sudden reversal when you're already at high employment (or productivity) and it might not even be bad depending on what caused the equilibrium shift and how bad it is.

Maybe people are confusing trade deficits with international loans? Maybe because prosperity is easier to imagine with big ships filled with cargo crates and felled trees instead of some day trader?

Lago PARANOIA wrote:Because it won't matter? Because the dollar losing reserve currency status means that exports will go up, unless your productivity is so shitty that even a devaluation of currency won't lift you out of the hole.

That wasn't your argument, you said other countries would sustain the trade into the US if China stopped subsidizing US consumption. If the US loses reserve currency status it's imports and standard of living will drop though ... sure US exports will rise allowing the US to pay it's own way a little more, but in the end getting something for free allows you more consumption than if you have to give something in return.

Dude, what are you even talking about?

You said "2.) Let's assume 1, though. This means that while the U.S. is experiencing high employment" I had no idea how you arrived at the conclusion that the US would have high employment when the dollar lost value ... so I just assumed that you meant that if the US inflated away it's debt it would automatically have high employment, because of the inflation/growth correlation (which is invalid in a supply shock, which due to the massive trade deficit any drop in the value of the dollar would represent).

I guess you meant to say "high unemployment" though in retrospect ... I was trying to make sense from nonsense.

1.) I don't think that this is necessarily the case. There a still a bunch of jobs that still need to be done by humans.

This is true, but for a lot of these jobs you're competing with countries like China ... if your workers and wellfare recipients consume more oil (either directly in production, or indirectly through their own consumption) to produce something you won't be competitive in it's production, even with the US's higher energy efficiency and better infrastructure I think it will take a large drop in living standards to become competitive for the production jobs which shifted to China and Mexico.

It's better policy to just boost production and redistribute the resources after the fact rather than just circle-jerking down the death spiral of poverty.

Boosting production can be incredibly hard for a country like say Greece, to become competitive for the kind of jobs they are suited for they don't need just a little inflation. The kind of inflation they need is not without it's downsides either, especially with neoliberal governments unwilling to attack the rent seekers who can easily avoid it ...

Frank gave you a pretty good analogy of what that means. Trade balance is a statistic that's only meaningful in context. It's like saying 'I gained 20 pounds of water and fat'. Is that a good thing or a bad thing? If you're already morbidly obese it's bad, but if you're a concentration camp survivor that's very good.

IMO trade deficits are like drugs, nice while they last ... but going cold turkey can be hell and you don't always have a choice in the matter.

MfA wrote: That wasn't your argument, you said other countries would sustain the trade into the US if China stopped subsidizing US consumption.

First of all, China subsidizing U.S. consumptions isn't some Sword of Damacles that would necessarily make the economy collapse if the Hu Juntao wished it so. If the U.S. really wanted to they could pay off the entirety of foreign-owned debt within three years with a minor increase in taxes on the rich. People don't want to do that, however, because it'd be a powerful tool to fight inflation and having some of your money in other countries creates political stability as long as it's modest and not over-leveraged. So is it?

Eventually it could end up like that, sure, but the amount of U.S.-owned debt as a percentage of GDP is small and has been mostly flat for quite some time. But it's not because the U.S. is overleveraged, it's because no one has the political will to raise taxes, implement real UHS, or tamp down on the MiC.

Assuming the U.S. doesn't just rip its sackcloth and throw ashes on its face when the PROC tells us that they're not loaning anymore money for some reason and want to be paid back right now (why?), the U.S. could quick-implement those fixes and then keep carrying along smartly.

If the US loses reserve currency status it's imports and standard of living will drop though ... sure US exports will rise allowing the US to pay it's own way a little more, but in the end getting something for free allows you more consumption than if you have to give something in return.

I don't think that losing reserve currency status should be something you fear all that much. Its impact is pretty minor. I mean, you'd rather have it than not have it, but if the cost of maintaining it is to artificially extend the duration of a recession it's seriously not worth it. The loss in GDP due to the economy being 4-5 points away from full employment and having reserve currency status is more than having full employment and losing it that year.

More ironically, if you're really that concerned, you should be afraid of losing reserve currency status due to a prolonged drop in productivity and GDP than because of devaluation. Taking an antibiotic when you're sick will temporarily make you even sicker, but in the long run it's better than waiting it out.

MfA wrote: You said "2.) Let's assume 1, though. This means that while the U.S. is experiencing high employment" I had no idea how you arrived at the conclusion that the US would have high employment when the dollar lost value ...

Because in a politically stable nation when the economy is not operating at full employment inflation due to the increase in money supply is modest until you reach that point. Money supply is only one of the determinant of aggregate demand, which is really what drives inflation/prices. Or devaluation if you will.

Even when the New Deal was in full swing (before the Roosevelt Recession and afterwards) the inflation was modest. So the most probable reason why the U.S. would be experiencing high inflation due solely to an increase in the money supply would be if the economy was at full employment already. Hence the assumption.

MfA wrote: This is true, but for a lot of these jobs you're competing with countries like China ... if your workers and wellfare recipients consume more oil (either directly in production, or indirectly through their own consumption) to produce something you won't be competitive in it's production, even with the US's higher energy efficiency and better infrastructure I think it will take a large drop in living standards to become competitive for the production jobs which shifted to China and Mexico.

???

First of all, uncompetitiveness due to wages (as opposed to production methods), while salient to a particular industry, is meaningless when applied to the economy as a whole. A worker drawing a large salary might weaken the individual corporation, but s/he makes every other corporation stronger. A worker drawing a weak salary will strengthen the individual corporation but make every other industry weaker. Unless the corporation is overleveraged even at weak wages you as the economy or country prefer the latter one; only the owners prefer the former one and only in a Tragedy of the Commons/IBGYBG like situation.

German automakers get paid way the hell more than U.S. automakers. Hell, German workers in almost all industries do better on pretty much every level than U.S. ones in terms of wages and free time and benefits. If the U.S. worker is uncompetitive then Germany must be like, fuck, double-uncompetitive. But it's not, because of the above effect.

But even assuming we buy into your point, so fucking what? It's not like the U.S. economy isn't making bank and the consumers are more or less fully employed. There's wealth, only it's unequally distributed. An economy in which 100 out of 100 people earn 10 dollars is just as profitable as one in which 10 out of 100 people earn 100 dollars, the rest get donkey dick, but the other 10 redistribute the moneys equally.

Boosting production can be incredibly hard for a country like say Greece, to become competitive for the kind of jobs they are suited for they don't need just a little inflation. The kind of inflation they need is not without it's downsides either, especially with neoliberal governments unwilling to attack the rent seekers who can easily avoid it ...

Who gives a shit whether it's hard or ineffective? How about whether it's the best of all alternatives? Even with its structural problems (like an insanely high GDP on the military) if Greece doesn't go back to the drachma and devalue its currency to boost exports, what the hell is their alternative? Stay on the euro and enjoy Great Depression-level unemployment for several decades?

MfA wrote: IMO trade deficits are like drugs, nice while they last ... but going cold turkey can be hell and you don't always have a choice in the matter.

That's a nice and pithy aphorism, but like most aphorisms is useless.

Once again, a trade deficit or surplus is a meaningless statistic without context. Hell, even a change from a surplus or deficit from one position or the other is meaningless without context. Having your family budget increase or decrease dramatically can be good or it can be bad when talking about the overall welfare of your family. It depends on what caused the change.

So, a trade surplus is like delayed inflation. Someone has to stockpile your money, which means you have to create more at home, which means when the stockpile is returned at some point in the future you get inflation (and massive production incentives).

In the meantime, a trade deficit is about keeping inflation artificially low and reducing local production (-> US), while a trade surplus is about keeping inflation artificially high and increasing local production (-> China).

The reason to reduce or increase local production is based around energy and other scarce resources. As your production goes up, you pay more for resources (-> Australia) and need to burn more coal and oil, which is all poison.

I know I made another thread about this, but that thread was a flop and it's more relevant here. Anyone else really, really fucking tired of the old 'but what about granny's pennnnsiiiiooooon' canard that stupid conservatives drop as a phony trump card?

Hey, dumbass, if the pension agreement doesn't have a reasonable COLA or inflation adjustment to it then you should either petition the government to fix that shit (only an extreme dysfunctional safety net wouldn't have one anyway) or if it's a private decision then you were a dumbass to agree to a fixed income without one. If granny has her money in a bank or under a mattress then she needs to reinvest that shit.