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About dutch

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  1. There is a problem with this viewpoint. Right now the US has a 700 B trade deficit with the rest of the world ( it would probably cost 2 to 3 T to make these goods in the US so this is a significant imbalance). The only way this deficit can be maintained is if the lender and spender of last resort inject new money into the economy. The lender of last resort is the Federal Reserve and the spender of last resort is the Federal government. Everyone else in the economy has to pay their loans back to banks/fed. So the only way to support a massive trade deficit is to have the only entities that can inject money into the economy inject it continuously. If the US was on a Gold Standard the rest of the world would have had EVERY single penny of the US's supply of money. Over the long run a healthy economy must create a neutral trade balance. Until we fix this problem the US gov CANNOT have a balanced budget for any length of time and the Federal Reserve wont be able to stop QE for any length of time.The only thing that prevents some form of collapse from occurring currently is the US military that preserves the US Petrodollar status. Eventually the world or market forces are going to force a balance of trade or the dollar will collapse. The choices the US has are: 1) somehow become more productive and create a neutral trade balance. 2) Default on obligations. 3) Keep using monetary and fiscal policy to increase the money supply until the whole thing collapses. Choices 2 and 3 would not be helpful because it would destroy the US economy. Unless enough money is flowing in the economy to cover debt the US risks a liquidity trap. Without fed deficit spending that liquidity trap would have occurred in 2008. Unfortunately that deficit spending was the only thing that prevented total collapse in 2008. The US NEEDS a larger manufacturing sector to balance trade. The US's, Europe's, and Japan's economic problems have not been resolved. The US hasn't solved any problems we just put those problems on a different credit card to buy time.