Savings – Not Tariffs Will Make America Great Again

While the farcical Kavanaugh confirmation hearings dominated the news cycle for the past couple of weeks, little mention was made of a disturbing economic headline – the August US trade deficit. Despite all the bluster from the Trump Administration about “winning trade wars” and “trade wars are easy,” America’s trade imbalances for August were the highest ever and its deficit with its most contentious partner – China – reached an all-time high.

Some highlights or low lights for the Trump Administration and the clueless economic nationalists were:

  • August imports of industrial supplies and materials ($49.7 billion) were the highest since December 2014 ($51.8 billion).
  • August imports of automobile vehicles, parts, and engines ($31.7 billion) were the highest on record.
  • August imports of other goods ($9.1 billion) were the highest on record.
  • August petroleum imports ($20.5 billion) were the highest since December 2014 ($23.6 billion).*

These numbers will probably mean that the Trump Administration will push for more and stiffer tariffs, although the President is set to meet with Chinese President Xi Jinping next month. Yet, if anything comes out of the meeting, it will have little impact on US trade imbalances or the economy overall.

President Trump does not have to meet with the Chinese President or, for that matter, any other head of state, for the cause of US trade problems emanate right where he currently resides – Washington, D.C. The US trade deficit is the culmination of years of ruinous Congressional and Presidential polices of high taxes, onerous regulations, and deficit spending which have gutted the nation’s manufacturing base. The US simply does not produce goods like it used to and has been kept afloat by its status as the world’s reserve currency. “King Dollar” has allowed America to consume without having to produce.

Instead of trying to strong-arm trading partners into better “deals,” the Trump Administration should be creating an environment for the re-industrialization of the American economy. The first step in such a policy must start with savings which is the key to economic growth.

Before production takes place, savings must be accumulated. The creation of goods takes place over time and savings provide the means for production – land, labor, capital – to be implemented. The more sophisticated goods require greater amounts of savings since they take longer to produce. Production, and thus, economic growth are intimately linked to savings.

Since savings are fundamental for economic growth, policies which encourage it should be advanced. Since the act of saving involves sacrifice, compensation for such behavior – “interest” – should not be tampered with or suppressed which will discourage saving.

The Federal Reserve’s policy since the financial crisis has been to artificially lower interest rates as it has tried to revive the economy by money printing and bank-credit expansion. The result has been the creation of massive asset bubbles, exploding federal deficits, and a debtridden economy.

While President Trump may prefer low interest rates, the exact opposite should be advocated. A free-market rate of interest (higher than current levels) would encourage savings, and while higher rates would pop asset bubbles, they are the necessary, albeit, painful fix to readjust the economy.

Once the bubbles are deflated, real economic growth can take place based on actual savings which will lead to capital formation and the creation of goods. America could start again to become productive and create goods to exchange with its trading partners. Such a transition, however, will not take place over night, nor will it be pleasant.

Below market interest rates has enabled the federal government to engage in its profligate spending, much of which is done through borrowing. Instead of badgering the Chinese and others, President Trump should be attacking Congress to rein in spending. Of course, he is a major culprit in this area, having signed off on the latest massive budget which included insane increases to unproductive and destructive “defense” spending of some $700 billion which he lobbied for!

Trade deficits are a symptom of a bigger problem with the economy and are an excuse to deflect from dealing with real issues. Until the current “bubble economy” is deflated and savings and investment become the foundation of American economic life, trade deficits will continue and the ensuing trade wars may then escalate into actual shooting ones.

*Tyler Durden, “US Trade Deficit With China Hits New All Time High,” Zero Hedge. 05 October 2018.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com

2 thoughts on “Savings – Not Tariffs Will Make America Great Again

  1. FreshOH

    In the debt ridden America. Saving isn’t the cure all.
    Albeit that I don’t, like most, understand monetary policies.
    This video helps a bit.

    – summary of video- Economy is fixed via Government issue of currency. Then some is lent back to the government via T-bills (savings). Government collects some of the issued currency via Taxation and either misappropriates or re-issues the currency back into the economy.
    _____
    seems a bunch of e-USD are a float, not hard currency and not backed by labor or asset.
    *labor defined as compensation for: production, skill, capital expenditure, and time.
    _____
    A vicious cycle perpetuates ever increasing ‘Gov Debt’ via interest and borrowing from the created economy.
    Explain how a ‘free interest rate’ market of saving would outpace, uh, student loan debt.

    If unable to (spend –> pay down debt) and save, while maintaining basic living expenses with flat wage growth of $0.25 – 0.3 YOY increases.
    ‘Produce and accomplish more and maybe next year the unattainable carrot of $0.50’ manager statement.
    The only suggestion provided for the flat wage growth is to seek out alternative employment.
    Few companies compensate appropriately for that hyped community college Associate degree in Business.
    Oh: ‘Go back to school to obtain that higher positional compensation’ They say. – i.e. more student debt.
    Companies are Save/spending into stock buybacks to look pretty on the exchange – increasing asset bubble – imo.

    Thinking UBI for permanent citizens via Government issuance into the created economy would create: jobs, savings, citizen and corporate debt reductions. Increasing a flow of capital. Basic single poverty threshold being about $12,200.00 * (325,700,000 citizens) = 3,973,510,000,000.00
    That is just short of 4 trillion issued into the economy. Creating a rising tide of savers. Then all productive labor for raw material and goods for consumption would be a positive for those that strive to improve upon that basic standard. Setting a consumption age minimum at fifteen and a half. Not counting for any change in cost of living… 15 * 12,200 = $183,000.00 of savings per citizen. Even if the Government borrowed half that with interest. The citizen and economy would be no worse off in this scenario. About $60,000,000,000,000.00 would be 15 years of UBI.
    Taxation of consumption and citizen saving still remains the constant for government expenditure.

    A vast difference between an interest at 3% on 547 trillion of derivatives. (www.bis.org/publ/otc_hy1711.htm) = 1,626,000,000,000,000.00

    Reply
  2. Pingback: Savings–Not Tariffs Will Make America Great Again – Olduvai.ca

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