America’s Middle Class Crisis: The Sobering Facts

[WhipperSnapper]

Say our country buys good from China and then china invests that money into US companies for them to grow (through buying stocks or bonds in private firms). This doesn't mean that we as a country have to go into debt. Our economy could grow and start producing more goods from the capital inflow that would lower our trade deficit in time.

The problem is that the Chinese and other countries aren't purchasing American-produced goods and services (why would they when they have much cheaper labor?). Instead they are purchasing American assets--business ownership and real estate. In essence, we are trading capital assets for short-term consumer goods, impoverishing ourselves in the long run. This essay by Warren Buffet may be of interest to you:

Squanderville vs. Thriftville

 

[WhipperSnapper]

So if I sell you something, and you pay me money, you now have more capital?

His claim is ridiculous. We don't have more capital--instead we have more ephemeral consumer goods--we have more goods for short-term consumption and less capital for long-term production.

 

[ElFenix]

Since on the subject of Mr. Boehner:
Boehner’s Views on Economy Contradicted by Indicators, Studies
http://www.bloomberg.com/news/2011-...onomy-contradicted-by-indicators-studies.html

crowding out is a commonly held belief (after all, there are only so many dollars that can chase investments), but i'm not entirely certain that more available options doesn't increase the investment pool (diversification++), and the fact that corporations are sitting on cash is the opposite of crowding out.

Haha. I have taken far beyond Econ 101. Capital = money. Trade deficit = less capital. If you want to argue some balance sheet shinanary instead of economic fact good luck with that.

no, capital moving offshore is less capital. if the capital remains here it stays in US GDP.

Why would China on their good graces invest in the US instead of themselves? Saying it could work if some crazy premise took place isn't really much better than just saying it can't happen.

because we give them little green pieces of paper when they send us stuff. they can't use the little green pieces of paper internally. so, they have to trade them for something. guess who is most willing to take little green pieces of paper? the US. if the chinese trade their little green pieces of paper for stuff made here that goes there, it comes off the current account deficit. if the chinese trade their little green pieces of paper for stuff that stays here, it adds to the capital account surplus.

 

[matt0611]

Haha. I have taken far beyond Econ 101. Capital = money. Trade deficit = less capital. If you want to argue some balance sheet shinanary instead of economic fact good luck with that.

Capital is not interchangeable with money. They are not exactly the same thing.
You are overlooking the fact that their money comes back here once we give it to them, they are lending us the money we used to buy things from them (i.e. investment, i.e. capital).

You know China is our biggest creditor right?
This is mostly because we have a huge trade deficit with them.

See El Fenix's post above me, he explains it better than I can.

 

[matt0611]

The problem is that the Chinese and other countries aren't purchasing American-produced goods and services (why would they when they have much cheaper labor?). Instead they are purchasing American assets--business ownership and real estate. In essence, we are trading capital assets for short-term consumer goods, impoverishing ourselves in the long run. This essay by Warren Buffet may be of interest to you:

Squanderville vs. Thriftville

We are in agreement. We are squandering the investments that we are getting from other countries on consumption and government. Its a huge problem.

 

[Gonad the Barbarian]

Capital is not interchangeable with money. They are not exactly the same thing.
You are overlooking the fact that their money comes back here once we give it to them, they are lending us the money we used to buy things from them (i.e. investment, i.e. capital).

You know China is our biggest creditor right?
This is mostly because we have a huge trade deficit with them.

See El Fenix's post above me, he explains it better than I can.

I'm not overlooking anything. Their money might come back over here as credit, but it's still their money. The real world is not a balance sheet.

 

[matt0611]

I'm not overlooking anything. Their money might come back over here as credit, but it's still their money. The real world is not a balance sheet.

That money is coming back here.
Have you looked at how much money china lends us every year?

China pours a lot of dollars into the US economy every year.

What do you think they do with the green pieces of paper we give them every year? Eat them?

 

[crownjules]

That money is coming back here.
Have you looked at how much money china lends us every year?

China pours a lot of dollars into the US economy every year.

What do you think they do with the green pieces of paper we give them every year? Eat them?

They're not just giving them to us. You say it yourself - lend. Those dollars are expected to be returned at some point in the future with interest. It wouldn't be so bad if the other side of the problem wasn't that we're irresponsibly spending that money on consumption and staying afloat on our existing debt.

 

[Gonad the Barbarian]

That money is coming back here.
Have you looked at how much money china lends us every year?

I don't know why you're arguing over this. China is clearly our biggest creditor...

I'm arguing

a) the amount of credit China lends to us is not necessarily equal to the cash outflow from our trade deficit

b) that the credit they do lend to us is not an asset, it's a liability, a debt to be repaid.

 

[matt0611]

They're not just giving them to us. You say it yourself - lend. Those dollars are expected to be returned at some point in the future with interest. It wouldn't be so bad if the other side of the problem was that we're irresponsibly spending that money on consumption and staying afloat on our existing debt.

I've been making that point this whole thread. I agree.

 

[matt0611]

I'm arguing

a) the amount of credit China lends to us is not necessarily equal to the cash outflow from our trade deficit

b) that the credit they do lend to us is not an asset, it's a liability, a debt to be repaid.

Right, I'll agree with you on this points.

All I was saying is that going into debt and trade deficits are not necessarily a bad thing, in this case I do believe it is a bad thing.

We're all in agreement anyway and I'll just shut my mouth now.