The goods and services trade deficit widened in September, reversing recent improvements. It was good news that both imports and exports increased after a shrinkage of trade resulting from the global contraction. The deficit increased because imports increased more than exports. Exports or goods and services increased by $3.7 billion to $132.0 billion while imports [...]
Credits in the U.S. balance of payments give rise to a demand for dollars. Debits reflect the supply of dollars. Together, they determined the exchange rate for the dollar. So far, so good. Everybody knows that. Then why is it that virtually all the commentary on the dollar on financial TV and in blogs fails [...]
(Not All Details are Bad) The front page of today’s Wall Street Journal features a useful breakdown of the third quarter real GDP statistics. On the negative side, it shows that the strength in consumption spending benefited from various temporary government programs: primarily cash for clunkers and the first time home buyers’ credit. Those will [...]
Why can’t we learn even the most obvious lessons from the Great Depression? Many policy mistakes were made then, but perhaps the biggest and most destructive was the Smoot-Hawley tariff that contributed to a world-wide trade war and the reinforcement of the depression’s downward spiral. We’ve already dissed our Mexican neighbors by abrogating the trucking [...]
(I'm Hopeful, but not Convinced) A Technical Answer The Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Analysis determined that the current recession began when payroll employment started declining in January 2008. I doubt that they well declare the recession over while payrolls continue to decline, even if we get positive [...]
Undesirable and Unnecessary Protectionism is creeping insidiously into the rhetoric of financial TV. "Taxpayer money should be spent to stimulate the domestic economy, not foreign economies." "We should be creating domestic jobs, not foreign jobs." This slippery slope to protectionism is undesirable. It won't work. It will invite retaliation. However, it's not only undesirable, [...]
A Primer The balance of payments always balances. That's why they call it the balance of payments. Constant balance (not to be confused with equilibrium) results from double entry accounting where total debits always equals total credits. Each international transaction results in a new debit and a matching new credit; an equal reduction in [...]
In my last blog for the New York Times, I reviewed the effect of our trade balance on GDP. We've had a deficit (imports>exports) for several years, which is a net minus, or drag, on GDP. However, in recent quarters, in part because of the decline in the dollar until lately, the deficit has shrunk, [...]