That’s really interesting. So what you’re saying is, Germany sold more to the states than they bought, but the states were able to “keep” the money by marking off that Germany had so much gold.
And I guess now, Germany is concerned that the states may no longer honour that ledger.
Germany can’t be more concerned than before. I expect that the publicity is a chip in the current trade negotiations that must be happening after Trump announced the tariffs.
If the US buys more stuff from you than you buy from them, you have excess US dollars. What happens with those US dollars? Does the US put pallets of US currency on airplanes and send them to you? No. Typically, you invest them in the US. At a minimum those dollars end up as deposits in US bank accounts in US banks.
Did you ever wonder how counties like China or Japan ended up with over a trillion dollars each worth of US treasury bills? US treasury bills are loans to the US government. Those came from trade. The US got to enjoy high quality Japanese cars and cheap Chinese goods AND the US government got to spend more money than they collected in taxes. Not a bad deal if you think about it.
If you have a trade deficit with a another country, you could reframe that as saying that the country has an investment surplus with you. Does that sound better?
Or, instead of saying that you are going to eliminate your trade deficit, you could instead say that you are going to eliminate foreign investment. Does that sound good?
One of the things you could buy off the US with your excess dollars is gold. But then the US gets to keep the money (and maybe the gold too).
Instead of investing your excess US dollars directly in the US, you could sell those US dollars to invest somewhere else of course. But all this does is move the money to somebody else who then has the same problem (excess US dollars). At the end of day, US dollars have to get spent in the US. You either buy goods from the US (trade) or invest in the US (capital). In aggregate, any trade deficit has to be balanced by a capital surplus.
I said above that you could just park your excess US money in a US bank. If you do that, the US bank will loan that money out to collect interest. Except due to how “fractional” banking works, they will loan more money than you deposit, creating big interest inflows (in US dollars), creating wealth in the US from the money the US spent buying stuff abroad. If other countries are taking out these loans, the interest payments are considered “services”. You may have heard that the US has moved from a manufacturing economy to a services economy. This is an example.
Of you could buy other “services”, like paying US “experts” for their expertise or US software companies for software or time in their “cloud”. You send the US cars and T-shirts. They send you “experts”, Microsoft Office, social media, and advertising. And if you do not buy enough experts and software, the resulting “trade deficit” ends up in a US bank account or stock market where the US financial system will use it to create US wealth out of thin air (because that is what fractional banking and stock markets do). The bugger the trade deficit, the more money there is to drive that cash fly-wheel.
But what if you just bought gold? Did not putting the money in a US bank stop the fly wheel? Well, first of all, you are probably paying the US for security and some insurance company too. There are a couple more services the US gets to sell you on their “debt”. But you can bet somebody has “levereged” that gold by borrowing against it to invest. They were probably able to do that on “margin” which puts us back in that “fractional”, money from nothing system we talked about earlier. And the “money” we are talking about here of course is US dollars. What do we do with those? See above.
But don’t begrudge the US the wealth they create from your investments in the US. After all, those “excess” US dollars from the original trade deficit made you rich too. Ask Norway.
Trade makes counties rich. Modern financial markets and other “services” amplify that wealth. The US is the richest country in the world. They didi not get that way by getting “ripped off” by everybody. It is too bad more people do not understand the system that has made them so rich.
That’s really interesting. So what you’re saying is, Germany sold more to the states than they bought, but the states were able to “keep” the money by marking off that Germany had so much gold.
And I guess now, Germany is concerned that the states may no longer honour that ledger.
Germany can’t be more concerned than before. I expect that the publicity is a chip in the current trade negotiations that must be happening after Trump announced the tariffs.
That is how trade works in general.
If the US buys more stuff from you than you buy from them, you have excess US dollars. What happens with those US dollars? Does the US put pallets of US currency on airplanes and send them to you? No. Typically, you invest them in the US. At a minimum those dollars end up as deposits in US bank accounts in US banks.
Did you ever wonder how counties like China or Japan ended up with over a trillion dollars each worth of US treasury bills? US treasury bills are loans to the US government. Those came from trade. The US got to enjoy high quality Japanese cars and cheap Chinese goods AND the US government got to spend more money than they collected in taxes. Not a bad deal if you think about it.
If you have a trade deficit with a another country, you could reframe that as saying that the country has an investment surplus with you. Does that sound better?
Or, instead of saying that you are going to eliminate your trade deficit, you could instead say that you are going to eliminate foreign investment. Does that sound good?
One of the things you could buy off the US with your excess dollars is gold. But then the US gets to keep the money (and maybe the gold too).
Instead of investing your excess US dollars directly in the US, you could sell those US dollars to invest somewhere else of course. But all this does is move the money to somebody else who then has the same problem (excess US dollars). At the end of day, US dollars have to get spent in the US. You either buy goods from the US (trade) or invest in the US (capital). In aggregate, any trade deficit has to be balanced by a capital surplus.
I said above that you could just park your excess US money in a US bank. If you do that, the US bank will loan that money out to collect interest. Except due to how “fractional” banking works, they will loan more money than you deposit, creating big interest inflows (in US dollars), creating wealth in the US from the money the US spent buying stuff abroad. If other countries are taking out these loans, the interest payments are considered “services”. You may have heard that the US has moved from a manufacturing economy to a services economy. This is an example.
Of you could buy other “services”, like paying US “experts” for their expertise or US software companies for software or time in their “cloud”. You send the US cars and T-shirts. They send you “experts”, Microsoft Office, social media, and advertising. And if you do not buy enough experts and software, the resulting “trade deficit” ends up in a US bank account or stock market where the US financial system will use it to create US wealth out of thin air (because that is what fractional banking and stock markets do). The bugger the trade deficit, the more money there is to drive that cash fly-wheel.
But what if you just bought gold? Did not putting the money in a US bank stop the fly wheel? Well, first of all, you are probably paying the US for security and some insurance company too. There are a couple more services the US gets to sell you on their “debt”. But you can bet somebody has “levereged” that gold by borrowing against it to invest. They were probably able to do that on “margin” which puts us back in that “fractional”, money from nothing system we talked about earlier. And the “money” we are talking about here of course is US dollars. What do we do with those? See above.
But don’t begrudge the US the wealth they create from your investments in the US. After all, those “excess” US dollars from the original trade deficit made you rich too. Ask Norway.
Trade makes counties rich. Modern financial markets and other “services” amplify that wealth. The US is the richest country in the world. They didi not get that way by getting “ripped off” by everybody. It is too bad more people do not understand the system that has made them so rich.