Re: How significant is a country's "current account balance"?

emekadavid wrote:
jerryams wrote:
Draccarlaw wrote:
Jerry (Not Lantern),

I'm not sure if I agree with you on one salient point...read on.

Suppose that a country B tried to do us a favor by selling to us really
cheap hodgepodge. They love us so much, and they are selling at a
*LOSS*.

When you do the math, you see that the 2 cases are identical (assuming
that they are gifting us at a 5% loss).

Hey man, that gift is free money to country A! How is that bad? Your
argument seems to imply that A is indebted to B, and must pay for this
loss some how.

Another way to look at it is this: Country A is getting a GREAT deal
on an item, and country B is getting SCREWED over by the sale. Country
B should find another trading partner because they are getting poorer.


Please read on...




Thus the average profit margin for companies of nation A (30%) is
much better than B (-5%).

You meant that the A's margin is 20%.

But the trade deficit of -$1000 Billion still
must be paid by nation A. Where does the money go?

I'll tell you to the best of my ability: that $1000 went from A to B
to help pay off the workers and vendors and for capital equipment.
Note that this $1000 is *NOT SUFFICIENT FUNDS*, because the actual cost
is more than $1000 since B is selling at a loss. Perhaps their workers
demand so much money, or their capital equipment depreciates too
quickly, etc. So the $1000 is being sent off to the Bs, but they
SHOULD be sending more.

This relationship is unsustainable, and the nation that breaks first is
B and not A.

How can +1000 Billions (export minus import) be a loss? The example
I wrote is merely using previous poster's misconception -- that China
is selling products to US at a loss -- to demostrate that EVEN if
nation B is exporting products to nation A at a loss, they can still
get ahead if they consume less than they produce. In reality that are
selling products at a profit as a whole. In addtion to the raw
material, most of their costs in production are wages and operating
expenses that contribute to their domestic economy, not to nation A. On
top of that, their government gets a lot of taxes on these wage and
expenses. The government of nation A gets nothing out of that.

In reality, a nation selling things at a profit. Dumping at a loss
is merely a strategy to reduce inventory or monopolize the market in
selective areas only. Don't hold your breathe that China is selling
things to US "at a loss." Most of these so call "loss" is a gain to
their domestic economy and taxes. None of it is going back to US.

Let me repeat the point, the "loss" you are thinking about is from
the point of view of production only. It did not include the
consumption part (import).

talking about current account balances, all the talk has concentrated
on production, but a credit account debit might hide the fact that a
country is selling securities to another nation due to its high stock
of savings, which america is noted for and the future benefits,
interest, rental income etc of those securities would surely offset the
imbalance. if securities are not involved, especially when it involves
developing countries, then it's not worth noting the events in that
economy.

Selling securities can not "offset" the trade imbalance, it merely
delays the payment. The future government still has to pay back every
cent of the trade imbalance.

.

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