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User avatar #8721 - brettyoke (09/13/2012) [-]
Gonna vote for Obama?

You know that $300 billion trade deficit we have with China? Obama could fix that, but he doesn't. Obama recently announced that he managed to attain a $45 billion trade deal with China, and talked about how "we're getting ahead." We're still $255 billion behind.

You know the oil problem we're having? We spent $15 to defend half of the countries in OPEC (80% of the worlds oil suppliers) and they still gather together to collectively hike up their gas prices and smash our economy. We can fix this easily, by allowing for US domestic drilling. Estimates say we have up to 87 years worth of the United State's usage of oil within our own borders, we just need to utilize it. In that time, OPEC will either be forced to make a deal with us or we'll find alternative energy sources.

Instead of that, Obama uses 30 million barrels of oil from the US emergency oil reserve (235 million barrels) to temporarily lower gas prices at the beginning of summer to make himself look better for the polls.

That, is why I dislike Obama.
User avatar #8756 to #8721 - airguitar (09/13/2012) [-]
As an economics major, I would like to challenge you about the first bit. What is a trade deficit and why is it bad?
User avatar #8759 to #8756 - brettyoke (09/13/2012) [-]
A trade deficit is how much more one country trades another.

We trade apx. $100 billion in goods and services TO China on a yearly basis. They trade apx. $400 billion in goods and services TO us (US) on a yearly basis. That creates a $300 billion trade deficit.

As an economics major, I'm shocked you're unaware of that.
User avatar #8799 to #8759 - airguitar (09/14/2012) [-]
Please respond to my comments below sir.
User avatar #8804 to #8799 - brettyoke (09/14/2012) [-]
I understand where your coming from, and as I am not an economics major, everything I state below may not be 100% true, but I've tried to do a bit of research here and there:

When we give China 400 billion dollars on a yearly basis, that is not just bunched up with one person. It goes to the various corporations, sales people, and porn directors that sell us goods/services. As we know, the US dollar is a very prominant bill in the world (behind the Euro) and is accepted in quite a few places. Yes, about 100 billion of that money is turned around to purchase American goods, and the rest goes to banks.

In my financial literacy class, I learned that businesses may exchange foreign currency to the bank for their own national currency, which is often done through the government. After that, many governments are willing to do exchanges of currency to receive some of their own back. By that, I mean that the American will give China some Renminbi for some US dollars at the official exchange rate. The remaining 300 billion that China has can be spent in lots of places around the world, as most places accept it, and the money cycles around until it ends up back in its home country. Due to that, we have money all over the world.

Another problem with the deficit, is that the Chinese government is "cheating" in their currency. They are changing their official exchange rate so that they get more of their currency back for every US dollar they give to us. That takes us back to one of my original points, that we need to be more strict with China and how they deal with their currency.
User avatar #8805 to #8804 - airguitar (09/14/2012) [-]
I have to go do something right now but will try to respond in a bit. I wasn't sure how to take your earlier message though. I couldn't tell if you were saying YOU were an econ major and were surprised about my question. I thought you were saying "I am surprised you are getting a degree in economics and didn't know something as simple as....". Obviously I got the wrong impression from your message and want to apologize for that- I interpreted it the 2nd way.
User avatar #8807 to #8805 - brettyoke (09/14/2012) [-]
It's all good mate, while you're obviously more advanced in this than me, it's fun to try and keep up with you. :P
User avatar #9044 to #8807 - airguitar (09/19/2012) [-]
I apologize for making such a huge deal about you replying and then didn't for 4+ days...

Now I will focus on one area of your response. You write about the banks and consumers/companies' ability to exchange the currency with the banks. Based on what you wrote, you make it sound like the Chinese banks have an unlimited ability to exchange money back to America. Now I know you probably only meant they are able to do this to an extent, but I am going to explain why.

There are not a huge amount of Renminbi held by the U.S. Government/ U.S. Banks. Now there obviously is a good amount but nowhere near the 300 Billion amount we are talking about that. And more importantly, that would not be a sustainable arrangement. This is because if America spends 400 Billion on Chinese goods and pays with US Dollars, and the Chinese buy 100 Billion US goods with Renminbi, there is a "deficit". Now often, a currency traded between countries is automatically exchanged by the payment service/government/bank. When a Chinese businessman sells you a product in the US, they receive Renminbi. This is because the payment service (paypal for example) would have a deal with banks. This means that the 300 Billion US dollars is absorbed by banks in China and they automatically exchange the money for their people- who receive Renminbi. The Chinese banks, in return, would receive some of Paypal's profits and would be forced to deal with the US Dollars (The "trade surplus" was earned by sellers and exchanged so that banks now hold all of the money earned from trade with America).
User avatar #9045 to #9044 - airguitar (09/19/2012) [-]
The Chinese banks could strike a deal, as you mentioned, and trade SOME of the US Dollars to America in return for Renminbi. However, since less Renminbi was sent to china (300 Billion less in fact), there are MUCH less Renminbi in America than there are US Dollars in China. The US cannot just produce Renminbi out of thin air, so it is impossible for this "exchange" of currency to occur consistently. In other words, the money can be spent on American goods and services, be held in banks for no reason (because it is not used there), or be invested in America.

You mention that the American dollar is accepted worldwide. This is not really true. Even in Canada (I visit often) it is not accepted. Although the US Dollar is one of the most widely accepted currencies, most of them return to America one way or another with few exceptions. This means that if the Chinese banks I mentioned before decide to invest the 200 Billion dollars in Italy, and the Italians decide to buy 100 Billion worth of goods in Thailand- the Chinese, Italians, and Thai Banks/ Consumers will eventually have to invest/spend the money in America. The money must come back. There are of course exceptions but they are small.

What this means is that the current account surplus (which tracks investments and future expenditures) would only show the US having a 100 Billion dollar surplus from China and it may look bad- but that is because the other 200 Billion would show up in the trade deficit/surplus between Italy and Thailand.

Adding all these variables makes the whole issue very confusing which is why I tried to explained it overly simple in the beginning. As for the exchange rate, that has nothing to do with the value of the currency not coming back to America. China's fixed exchange rate effects certain markets in America- which may cause lest money to be spent on American goods and services- but it does not cause us to have a complete "deficit" including the capital account.
User avatar #8770 to #8759 - airguitar (09/13/2012) [-]
What happens to the 300 Billion though?

Let's make this simple, simpler than it should be. When we buy things from China, we pay them in U.S. DOLLARS. When they buy things from us, they pay in CHINESE RENMINBI. Is this not true? When you, as a consumer, buy a product from China you typically buy the product with U.S. Dollars- this is the case because consumers typically only have their own country's currency.

To explain this, let us assume than one US Dollar is equal to one Renminbi (not true at all obviously, but bear with me). So, we sent 400 Billion Dollars to China for Chinese goods and services - the Chinese send 100 Billion Renminbi to the US in return for US goods and services. If you sold something to a man in China and receive Renminbi in return, what are you going to do with that money? You can not spend it in America, obviously you can trade it to someone else- but the money always will return to China because that is where Renminbi are accepted as legal tender.

Same applies for the Chinese. We sen 400 Billion dollars. Chinese shop owners who sold their goods to America can spend the U.S. dollars on American goods or they can trade it for their own currency. Even if they trade it for their own currency, the money will eventually return to America because that is where US Dollars are accepted.

What I am saying is that all currency must eventually return to the country it originated from. What is a trade deficit then? Are the Chinese selling their goods to us and then holding on to our 300 Billion US Dollars? How would that benefit them? Why is there a 300 Billion trade deficit then?

Continued below...:
User avatar #8771 to #8770 - airguitar (09/13/2012) [-]
What is typically called the "trade deficit" is only referring to the Current Account. This account of the trade between nations only accounts for goods and services that are exchanged currently. So manufactured goods, services and contracts, and even designs sold would count under this. This would mean that we import 300 Billion less goods and services than we export to China. The other 300 Billion dollars goes to the Chinese people to spend on American goods, but if they are not spending it on Goods, then what are they spending it on?


300 Billion dollars worth, which is the deficit, would be spent by Chinese investors. As I mentioned, they can only spend their money in the US, if they don't spend it on goods and services then they are spending it by investing the money in the US. This is typically referred to as the "capital account" and deals with future purchases- which si what investments are.

Now you can argue that goods and services might make our country stronger, but I tend to disagree. The Chinese people/government are investing money in America because they think that the enterprises in the US will give them good returns. This initial action is a good sign- it shows that foreign peoples still believe the US is worth investing in. Additionally, this money is getting put to good use by individual citizens, stocks, land being purchased, mortgages, and to start up businesses. All of these things benefit our country, the money is still flowing into our country and the only reason we are able to pay interest on those investments from the Chinese is because it is growing business here. Please tell me if this does not make sense to you.

So let me make one last comparison. Why is the US sending a automobile to China for $20,000 Dollars better for our country then sending a bond to China for $20,000? In both cases a trade is occurring and our money is returning to America. What is BAD about a trade deficit?
User avatar #8772 to #8771 - airguitar (09/13/2012) [-]
LASTLY: What if a Chinese company sells some products to America, receives US Dollars for the cash, and then burns them? What happens then?

In that case, it is like you giving a check to someone and then they burn it. Would you be sad or happy that they did that? Well you would be happy, they burned the certificate that promised them X amount of value from your bank account. The same applies for my example above. If a Chinese company burned US Dollars, that means that the Chinese would then not be able to buy US goods so the value of those goods would be retained in America. There is a VERY CLOSE relation between the Money supply and Price Level (value of a dollar) as well. So when the Chinese burns our money, that causes all of the other US Dollars to absorb the value of the ones burned- making everyone who has a US Dollar slightly richer.

Obviously this is not a normal argument but I thought I would include it.

User avatar #8727 to #8721 - pokemonstheshiz (09/13/2012) [-]
We actually only get about 10% of our oil from the Middle East.
But the rest of the info is legit.
#8744 to #8727 - johnshepherd (09/13/2012) [-]
True, but OPEC is composed of more than just the middle east, although that does account for a significant portion. OPEC essentially sets the international price in dollars per barrel of oil.
User avatar #8746 to #8744 - pokemonstheshiz (09/13/2012) [-]
I don't understand why people aren't taking electric cars seriously and industries aren't focusing on using solar power. We're developing the technology to do both just as efficiently, just no one's getting on board.
#8762 to #8746 - johnshepherd (09/13/2012) [-]
Electricity is helpful, but at the moment, we could run our country on only our oil for generations, giving us the time we need to build up those resources and, if we decided to sell our oil, we could maybe even pay off some portion of our debt.
User avatar #8760 to #8746 - brettyoke (09/13/2012) [-]
Oil is easier, faster, and still more accessable than those. That's why we need to drill domestically, to buy time to develop those things.
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