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Letters by a modern St. Ferdinand III about cults

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Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Friday, March 25, 2005

Why Trade Deficits Don't Matter

by StFerdIII

The negative media, which is negative on every issue from Iraq to a US economy that is growing at more than 4 % per year, will tell you that the US$ must fall due to underlying economic weakness. In particular the pessimists center in on the trade deficit. But this is a canard. A trade deficit running at about 5 % of GDP has been the norm throughout US history. Much of this trade deficit is Foreign Affiliate trade in Services [FATS] which are US firms shipping product and material back to the US market from overseas. Fully 50 % of Chinese ‘exports’ are FATS related.

US$ should recover if the US Fed Reserve does not overprint US$ in excess of GDP growth. The money supply policy since 2001 has been very loose with U$ supply at about 2-3x economic growth. Once interest rates go up, and dollar printing is curtailed, the U$ will rise. I would predict a 20 % stronger US $ in 2005. This means that the C$ will fall to about 72 cents US.

Experts tell us that the trade deficits caused by the inflows are somehow a signal of economic weakness in the
U.S. This is interesting as a logical fallacy. I would assume that if the US is so miserably weak, capital would flow out and not in. If Germany and Canada for example, are so vibrant why is capital flowing out? The Canadians are running a surplus but so what ? The Canadian economy is growing at 50 – 60 % of US levels with higher unemployment, higher interest rates and taxes, and non-existent productivity and government-managed oligopolies in major sectors. The German economy is even more stagnant with massive labor and capital dislocations and inefficiencies. These structural weaknesses are the real reasons why capital is flowing out from these countries.

US trade deficit is due to two primary factors – low US savings and capital inflows. Even with a strong dollar during the 1990s the US trade has consistently increased. In only one year [1992] was there a surplus. Weak savings is an issue, which is why ‘savings’ reform is necessary through tax incentives and private retirement options. Capital inflows actually indicate that the US economy is fundamentally more sound that other economies including China. If investors were unsure of US economic strength they would not buy US debt. Yet the purchase of US debt continues apace. It is unrealistic to assume that foreign buyers and owners of US debt want their holdings cheapened through massive US currency decline. Given US GDP strength they are betting on an increasing U$.

The Americans could of course reduce their trade deficit overnight. They could increase taxes, pursue high tariffs, smash or burn Japanese or Korean or Chinese products on the steps of Capital Hill, and regulate all foreign investment like governments in
Europe and Canada do. Certainly the Democratic party in the US and Canadian liberals would applaud if these policies were enacted in a show of macho nationalistic bravura. But the average American would suffer greatly if such adolescent posturing were to be enacted.

So the
US should be happy to have a trade deficit – what they need to do is to erase their budget deficit.

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