kyounge1956
Thinks s/he gets paid by the post
- Joined
- Sep 11, 2008
- Messages
- 2,171
I'm now on my third attempt at reading The Predator State, by James K. Galbraith, and for the third time I've gotten stuck on chapter 5, with the relation between trade and budget deficits. The author writes
I don't get it! Why would the two deficits be "so closely related...that they usually amounted to two aspects of the same thing"? Is there a cause-and-effect relationship, and if so, which deficit is the cause and which the effect?
I tried posting this question over at bogleheads, but the thread got deleted . The PM I got notifying me of the deletion had a different thread title in it than I used, so I hope this is just a mix-up and it gets reinstated, but in the meantime, I thought I'd ask here too. Maybe if someone puts the idea in different words the light bulb will come on for me.
It's not at all clear to me why this should be so, and the author doesn't explain it. Of course, having failed to understand this, I'm completely mystified by what follows. The author ends the chapter,"There is a basic relationship in macroeconomics, as fundamental as it is poorly understood, that links the internal and the international financial position of any country. A country's internal deficit, that is, its "public: deficit and its "private" deficit—the annual borrowing by companies and households—will together equal its international deficit."
"In sum...balancing the budget is a mission impossible... For practical purposes, the realized budget deficit no longer depends on federal budget policy decisions, but rather on international trade and the financial position of the private sector. So long as American foreign trade remains in a permanent state of deficit—which it has to do, so long as a growing and unstable world economy requires dollar reserves—the federal budget deficit is basically permanent. Policymakers and pundits can say what they like about budget deficits. Nothing sustainable can or will or even should be done about them, except through a change in the world's financial system. ...it is in the global financial system, and not in the halls of Congress, that the future fiscal balance of the U.S. government...will be decided."
I don't get it! Why would the two deficits be "so closely related...that they usually amounted to two aspects of the same thing"? Is there a cause-and-effect relationship, and if so, which deficit is the cause and which the effect?
I tried posting this question over at bogleheads, but the thread got deleted . The PM I got notifying me of the deletion had a different thread title in it than I used, so I hope this is just a mix-up and it gets reinstated, but in the meantime, I thought I'd ask here too. Maybe if someone puts the idea in different words the light bulb will come on for me.