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Trade and budget deficit

posted on 01 December 2012

People who say that the U.S. National Debt is manageable because it's less than the GNP are not thinking clearly. You can't pay the debt via the GNP. A danger is that foreign interests use the hemorage of Dollars (over $13 trillion because of a 2/1 import/export imbalance for a decade) will try to use the money to buy up U.S. assets. Were that to happen, we would STILL owe the debt and would have lost even more of our industrial base. Here's a solution: the money outstanding cannot be used to buy our assets, it can only be used to purchase American goods and services. Were I an advisor to Obama, I'd stick tjhis in his ear. No country in the world practices 'free trade' except the U.S., and Americans are about to pay through the nose, the party's over. Obama will have to raise taxes on all of us, but were he smart he'd take my advice. and impose the equivalent of import taxes. Like the rest of the world does. In Germany there's a 20% VAT on anything imported. That's a rather hefty import tax even if they refuse to call it that. Japan and China do not allow open inports. Let the discussion begin!

Discussion

Hmmm ... protectionism in times of a financial crisis that turned into a government debt crisis ... that is a nineteen thirties ecipe I would say. It didn't work back then, it won't work now either. If China would put more of its Dollar reserves into the market, the Dollar would go down automatically dampening US imports which then would need to be compensated by more home-made products. At the same time these products would become easier to export. The US problem is not that it suffers from free markets that are "one-sidedly free" but it buys to much and produces to little. China is the other way around. These kinds of imbalances take a decade long restructuring. Protectionism will only deepend the reccession. Apart from that ... I agree the US could do with hihger taxes and a 20% VAT on luxury goods as well as a 50% tax on gasoline would solve a lot of problems.