Bad News for US Trade Deficit

[Show Me the Wire]

Originally Posted by incoming

Sometimes common sense can be very hard to explain......but even I can follow that walk thru.....Thanks

It is my pleasure. It is a head scratcher that some people don't understand 3 minus 1 equals 2 and not 5.

Certain people want you to believe that the President doesn't understand that wealth is measured by the difference of assets you possess and the assets you transfer (liabilities and deficits).

[Clocker]

Originally Posted by Show Me the Wire

I have answered your question, now please answer mine about a factually simple formula akin to owner's equity which proves there is no negation from the transfer of assets (wealth) and that wealth actually increases.

I don't have a clue what that means, or why I should try to figure it out.

Here is the bottom line. Successful corporations create wealth for stockholders. You could look it up.

[Show Me the Wire]

Originally Posted by Clocker

I don't have a clue what that means, or why I should try to figure it out.

Here is the bottom line. Successful corporations create wealth for stockholders. You could look it up.

You don't have clue about the basic formula for owner's equity? I've explained the concepts of owner's equity and market share and none of those factually proven concepts agree with your assertions of wealth building through deficits. I asked you to give us a formula which proves your contention there is no negation to wealth by transferring assets and wealth actually increases.

Everything I previously posted in this thread is in complete agreement with how successful corporations create wealth for their shareholders. So I really do not understand why you think I need to look up creating wealth through accumulation of assets, it is part of the basic equation of owner's equity.

Also, I don't believe you understand what is meant by the term creating wealth. Here is a basic and accurate definition:

Accumulation of assets (especially those that generate income) over a long period of time.
https://financial-dictionary.thefree...ealth+Creation

Generally corporations create wealth by accumulating assets, usually by increasing market share and or acquiring income generating assets. Corporations do not increase wealth for their shareholders by losing market share or transferring assets, especially income producing assets to other corporations. However, it is possible to increase short-term wealth by transferring an appreciated asset for fair value, but the wealth in the long-term will be reduced unless another income producing asset of at least equal value replaces the transferred asset.


Like Actor is famous for saying, I can explain it to you, but I cannot understand it for you.

[classhandicapper]

I'm still offering this deal to all the "trade deficits don't matter" folks.

I'll buy 20K worth of goods and services from you every year if you agree to buy 40k of goods and services from me every year. At the end of each year, I'll take my 20K of capital surplus and buy a stake in your house to balance the books.

In 20 years we'll see where we stand.

And since I'm such a nice guy I'll even let you continue living in what is now my house.

This stuff is so obvious I can't imagine why there is any debate.

A country can function for a VERY long time in a trade deficit position. In fact, it can even thrive despite a trade deficit if it's doing many other things very well. Some of it depends on why there are deficits, how big they are relative to GDP etc.... That doesn't mean trade deficits don't matter.

There is no question that wealth is being transferred from one country to the other and you are WAY better off being the surplus country accumulating wealth.

[Show Me the Wire]

Originally Posted by classhandicapper

I'm still offering this deal to all the "trade deficits don't matter" folks.

I'll buy 20K worth of goods and services from you every year if you agree to buy 40k of goods and services from me every year. At the end of each year, I'll take my 20K of capital surplus and buy a stake in your house to balance the books.

In 20 years we'll see where we stand.

And since I'm such a nice guy I'll even let you continue living in what is now my house.

This stuff is so obvious I can't imagine why there is any debate.

A country can function for a VERY long time in a trade deficit position. In fact, it can even thrive despite a trade deficit if it's doing many other things very well. Some of it depends on why there are deficits, how big they are relative to GDP etc.... That doesn't mean trade deficits don't matter.

There is no question that wealth is being transferred from one country to the other and you are WAY better off being the surplus country accumulating wealth.

Yes, you have explained it very well in your prior posts. However, it is easier, for some, to believe in economic fantasies of "creating" wealth because the world contains unlimited wealth.

[Clocker]

Originally Posted by Show Me the Wire

However, it is easier, for some, to believe in economic fantasies of "creating" wealth because the world contains unlimited wealth.

In Post #33 in this thread you said

Everything I previously posted in this thread is in complete agreement with how successful corporations create wealth for their shareholders.

So can wealth be created or not? Inquiring minds want to know.

[Clocker]

Originally Posted by classhandicapper

I'm still offering this deal to all the "trade deficits don't matter" folks.

I'll buy 20K worth of goods and services from you every year if you agree to buy 40k of goods and services from me every year. At the end of each year, I'll take my 20K of capital surplus and buy a stake in your house to balance the books.

A really simplistic analogy without relationship to reality. To make it a little more realistic, you would not be "buying a stake in my house", you might be buying shares in a new corporation in which I was the principle owner.

If that new business succeeded, you would be paid dividends and might be able to sell your shares on the market for a profit. If not, you lost your investment. Thanks for playing.

[Show Me the Wire]

Originally Posted by Clocker

In Post #33 in this thread you said



So can wealth be created or not? Inquiring minds want to know.

In post 33 I stated: However, it is easier, for some, to believe in economic fantasies of "creating" wealth because the world contains unlimited wealth.



And I clearly stated how corporations "create" wealth, by acquiring assets, especially income producing assets. wealth is limited. Creating wealth is acquiring other people's existing wealth and I gave factual examples i.e. market share demonstrating that acquiring wealth is sum zero gain. For every winner there is a loser.

Accumulation of assets (especially those that generate income) over a long period of time.
https://financial-dictionary.thefree...ealth+Creation [emphasis added]

Wealth only transfers. Creating wealth is often confused with adding value.

However, you still have not explained your position why China should not want to embrace a large trade deficit with the U.S. as a means of creating wealth. But according to you China needs a trade surplus to create wealth.

Instead of asking me to keep on repeating the fact that wealth is the difference between assets and liabilities (deficits), step up to the plate and explain how China will create wealth by implementing huge trade deficits with all of its major trading partners.

[Show Me the Wire]

Originally Posted by Clocker

A really simplistic analogy without relationship to reality. To make it a little more realistic, you would not be "buying a stake in my house", you might be buying shares in a new corporation in which I was the principle owner.

If that new business succeeded, you would be paid dividends and might be able to sell your shares on the market for a profit. If not, you lost your investment. Thanks for playing.

The reality is he would own your business and he would have the wealth transferred to him when he sells the asset you financed by giving him the money to buy your asset.

He said he would buy a 20% stake in your house (business) every year to balance the books. In 5 years he would own the asset, as you would have used up all your surplus in that time span and have nothing left. You do understand when Class has 100% of the shares in 5 years you no longer own business, (house) right?

The other scenario would be he loaned you the 20% every year at short-term interest rates.

Either case you are the loser, you wealth has been transferred via directly transferring the asset over a period of years (Stock) or through repaying the loan with interest.

[Clocker]

Originally Posted by Show Me the Wire

And I clearly stated how corporations "create" wealth, by acquiring assets, especially income producing assets. wealth is limited.

What assets, income producing or otherwise, did Microsoft acquire to create the wealth of its stockholders? Or Intel? Or Google? Or Facebook?

Wealth is limited by what?

[ReplayRandall]

Originally Posted by Clocker

What assets, income producing or otherwise, did Microsoft acquire to create the wealth of its stockholders? Or Intel? Or Google? Or Facebook?

Wealth is limited by what?

All the companies you mentioned bought out their competition, increasing market share to dominant and monopolistic levels.

[Buckeye]

How trade matters is this: let's look at reality over the last 40 years or so, shall we?

(I do have to unlearn EVERYTHING they taught me at Wharton Business School , but here goes.)

Reality says the USA has been losing even though Wharton told me we're not and should not be and should not change anything!

Please try and follow along.

Let me know when you think you're being lied to.

[Show Me the Wire]

Originally Posted by Clocker

What assets, income producing or otherwise, did Microsoft acquire to create the wealth of its stockholders? Or Intel? Or Google? Or Facebook?

Wealth is limited by what?

I gave you enough answers for the time being, I don't feel like rehashing market share and adding value.

Tell us how China will create wealth be eschewing its current policy of trade surplus, for a current policy of large trade deficits with all of its major trading partners. That is your position now defend it.

[Buckeye]

Originally Posted by tucker6

Allow me to ask the question in a different way...

If deficits are such a good thing, why doesn't anyone want to trade places with the USA on trade imbalances, such as China? Why aren't the Chinese starting a trade war with us so that they can get into negative trade balance territory? After all, negative is the desired outcome, right.

It's going to take awhile to dig out of this pit.

We have been transferring our Wealth for how long now?

Doesn't matter because it's not happening anymore.

[Clocker]

Originally Posted by Show Me the Wire

The reality is he would own your business and he would have the wealth transferred to him when he sells the asset you financed by giving him the money to buy your asset.

None of which would ever happen in the real world. The hypothetical is inane. I'm sorry I even bothered to address it. Nothing there is even remotely reflective of the way the real world works.

The threshold inanity is the assumption or assertion that the same domestic entity, a US company, is both buying from and selling to the same foreign entity.

And that leads to the insanity of insisting that the sky is falling because of a trade surplus or deficit with a particular trading partner.

Assume that USA Company A buys goods from Chinese Company X, and USA Company B sells goods to Chinese Company Y. Assume that Company A and Company B each make a profit on the deals. What difference does it make which of those two transactions involves more money?