This is one of those things where an identity is taken, and I think too much is read into it by making questionable assumptions.
The underlying principle flows from the financial balance approach: the domestic private sector and the government sector cannot both deleverage at the same time unless a trade surplus can be achieved and sustained. Yet the whole world cannot run a trade surplusI accept both as true. The part that I don't accept is the trade imbalance as a permanent state for every nation. I don't believe it is historically accurate
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Let me see if I understand some of his points - as long as there are some countries running trade deficits, those countries running trade surpluses can pay down their debt? However if everyone tries to pay down their debt just willynilly- the effect (for how long as you point out) on private investment will be harsh?
Does this assume that the overall value of *.wealth in the world is fixed? It sounds like a zero sum game - for me to win, someone else must lose. In a way, if it were a zero sum game (like a board game where all the resources are fixed) then it's just moving money around and shuffling costs and debts to different parts of the market for different reasons.
I think that it assumes that all deficit/surplus is a zero sum game. US buys $1 trinkets from China. US trade deficit $1, China surplus $1. 1-1=0 The idea of wealth working that way isn't really a stated assumption, but I get that impression from the way things are phrased. It also would be false.(Why would anyone work?)
That's kind of what I got - and why I asked. It seems somewhat of a silly notion and I thought that wealth being zero sum game was disproven long ago. I can *totally* get that without the creation of new value and/or productivity, it might *appear* to be a zero sum game - but then something like the internet or other destructive/transformative technology comes along and blows that out of the water.
I'm wondering if this is a factor of the Euro and the fact that much of the debt is held externally.
The only way to increase money supply is for a private individual or the government to create debt, or to gain it via imports/trade.
So unless you can monetize your new invention / corporation (via investment from outside the country) Greece can't increase money supply.
If the money supply is actively decreasing, you can trigger serious deflation, increasing the difficulty of paying Greece's debt burden (both private and public) and generally making a huge mess.
This isn't necessarily a problem for the US (since the fed can just print money if it feels like it), but I have to wonder if it might not apply to specific cities, counties, or even states.
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The underlying principle flows from the financial balance approach: the domestic private sector and the government sector cannot both deleverage at the same time unless a trade surplus can be achieved and sustained. Yet the whole world cannot run a trade surplusI accept both as true. The part that I don't accept is the trade imbalance as a permanent state for every nation. I don't believe it is historically accurate ( ... )
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Does this assume that the overall value of *.wealth in the world is fixed? It sounds like a zero sum game - for me to win, someone else must lose. In a way, if it were a zero sum game (like a board game where all the resources are fixed) then it's just moving money around and shuffling costs and debts to different parts of the market for different reasons.
Before I go further am I missing anything?
Tim C.
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US buys $1 trinkets from China. US trade deficit $1, China surplus $1.
1-1=0
The idea of wealth working that way isn't really a stated assumption, but I get that impression from the way things are phrased. It also would be false.(Why would anyone work?)
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Tim C.
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The only way to increase money supply is for a private individual or the government to create debt, or to gain it via imports/trade.
So unless you can monetize your new invention / corporation (via investment from outside the country) Greece can't increase money supply.
If the money supply is actively decreasing, you can trigger serious deflation, increasing the difficulty of paying Greece's debt burden (both private and public) and generally making a huge mess.
This isn't necessarily a problem for the US (since the fed can just print money if it feels like it), but I have to wonder if it might not apply to specific cities, counties, or even states.
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