Budget Deficit Follows Trade Deficit

Sunday, October 23, 2011

Bruce Mulliken writes a newsletter on renewable energy developments and research that I've followed for years. His ability to see the big picture, challenge traditional concepts and 'get technical' is enlightening and motivating. This article from his August 29, 2011 newsletter is typical of his insights.

by Bruce Mulliken, Green Energy News

Spending a little helps pay the way for many. Buying a candy bar helps
pay the wage of the laborer on the candy bar production line. It
doesn't stop there. Down the candy production and distribution chain a
fraction of a cent from the purchase went to the wage of the machinist
who built the candy bar making machine. Another fraction went to the
worker in the mill that made the steel for that candy machine. A
fraction of a fraction of a cent went to the iron ore miner or the
worker in the steel recycling facility providing the raw material to
make the steel to make that machine. Of course some made profits too.

The nation's economy is helped when the candy bar, the candy bar
machine and the metal for the machine are made at home. The economy is
further helped if candy, machine, or steel is exported to foreign
markets. Exports bring new money into an economy, money that wasn't
there before. Imports see money go away. Money completely disappears
from an economy when imports exceed exports for a long period of time.

The U.S. has had an annual trade deficit for more than 30 years. No
surpluses in all those years. The last trade surplus was in 1975. It
was only a few years later, in the early 1980s, that annual federal
government budget deficits, and the cumulative national debt, began to

Maybe there's a connection.

The reliance on foreign oil and its increasing price has raised havoc
on the trade deficit in recent years. In the years 2001 through 2010
the U.S. imported $1.79 trillion's worth of oil out of the total
accumulated "trade debt" of $5.6 trillion. In the later years, 2008,
2009, and 2010 oil made up roughly half of our annual trade deficits,
according to data from the U.S. Census. In 2001 oil imports were only
20 percent of the trade deficit for the year.

Warren Buffett, of Berkshire Hathaway said in 2006, "The U.S trade
deficit is a bigger threat to the domestic economy than either the
federal budget deficit or consumer debt and could lead to political
turmoil... Right now, the rest of the world owns $3 trillion more of
us than we own of them."

(Is the Tea Party political turmoil?)

Buffett, the third wealthiest person in the world, thinks taxes should
raised on the wealthy to help the US get out of debt. Other wealthy
folk probably agree.

Concerned about the mounting national debt, and trying to make
political hay, the U.S. Congress is now poised to begin arguments on
spending cuts. Capitol Hill is expected to be a ugly place in coming
months as foul words fly across the political aisle. Don't expect
efforts to rein spending to help retain or create new jobs though.
Some spending cuts will mean layoffs. Other cuts will mean less cash
in people's pockets. Either way, fewer candy bars will be bought.
Somewhere down the line a steel worker will lose his job.

Republicans and Tea Partiers in Congress have said they have no
interest in raising taxes to increase revenues to reduce annual budget
deficits and the national debt. Instead maybe they should take a
closer look at the more evil trade deficit, including the oil trade
deficit. Money not shipped out of the country by the boatload would be
spent at home to save and create jobs. Some of that money that stays
within our borders will end up in government coffers reducing our
national debt.

Right now exports from the U.S. are being helped by a weak dollar
which makes U.S. products more appealing overseas. Conversely imports
have become slightly more expensive reducing the buying power of

Other work to reduce the trade deficit is coming from the White House.
The Obama Administration's work in increasing fuel economy standards
in cars and trucks will, in future years, reduce the nation's trade
deficit in oil. An added bonus will be a reduction in carbon
emissions. Further, consumers will save by the new regulations by
spending less on gas. Automakers, too, will benefit. They'll be forced
to innovate and develop new products energy efficient enough to be
sold in foreign markets. With the new regs, imports of oil should go
down and exports of cars and trucks could go up.

Now we're sending container loads of money to bolster other's
economies. Instead we need to fill those containers with goods like
candy bar making machines and see the containers come back to our
ports filled with cash. We shouldn't relying on the value of the
dollar to help exporters. Instead we should be focusing on export
products engineered, designed for global markets.

*Reprinted with permission from the author. See more from Bruce Mulliken at Green Energy News.


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