and what does Milton Friedman say about a country having enough money to import without export?
there's no such thing. when you import, you send your currency overseas to pay for the goods. There is nothing they can do with your currency except send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies. (otherwise there is this huge growing pile of your currency accumulating overseas which drives down your purchasing power since it's in surplus)
not sure if Friedman said that, but he did know more about econ that me, and what I've said is accurate.
>send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies.
That's true whether one foreign country exists or 10,000.
coutries trade with the US to get USD, but then trade that USD with each other
some countries stack up the USD like saudi arabia, but theyve got a pretty strong partnership with america on defense and foreign investment
USD has no value other than what it can purchase in the US.
Saudi Arabia does not pile up USD, they pile up USD denominated investments.
(basic finance that most people don't realize: When you put money in the bank, and the bank gives you interest, that's not your money in the bank, that's the bank's money. What you own is a certificate entitling you to the stream of interest payments. If you ever want your money back from the bank, you need to give them back the entitlement for the interest payments, and the interest payments will stop.)
the Saudis don't hold US currency, they hold bonds, et al.
Tell me you don't know what a Eurodollar is without telling me you don’t know what a Eurodollar is.
This entire thread smacks of ignorance. I encourage you all to take some basic university level macroeconomics courses before confidently spouting any more falsehoods about how international trade and finance works.
Any currency has value for anyone—or, more importantly, any group of anyones—who gives it value. If a person in Botswana and a person in Namibia want to trade, and they're happy working in USD between each other, then it has value there.
does the paper money of the US confederate rebel states have value? "any failed historical state's currency could have value to the people of Botswana" is not a useful idea.
Yes, I know, POWs used packages of cigarettes for currency, even those that had been passed around so many times that they were mush inside. I took econ too.
When you give money to a bank, the bank owes you money. You are a creditor and you technically own debt (which may or may not give interests). This debt is money.
The money supply is not a uniform things. It goes from actual paper money, through bank deposits which are more or less indistinguishable from paper money all the way to short term deposits and bonds.
Holding deposits and holding safe bonds is not particularly different. It’s more cumbersome to trade but it doesn’t significantly alter the reasoning about what you will be able to do with the dollars you have.
the bank does not owe you the money you put in, they owe you the interest payments.
look up "valuing a perpetuity", study the equations, that's how it works. If somebody owed you the interest payments and the money, your net worth (in regard to this money) would double. They only owe you the original money if you give back your rights to the interest payments.
I did study finance in grad school, I'm not making this up. I am using simplified language to stay focused on the simplicity of what is happening.
Any interest is certainly owed as well since it’s a consideration of a deposit agreement, but both are owed, not just the latter.
> If somebody owed you the interest payments and the money, your net worth (in regard to this money) would double.
Even for deposits, the way this works is that you discount future cash flow on top of your principal to get to your net present value. The NPV of a saving accounts above inflation viewed as a perpetuity is infinite thanks to the magic of compounding interests. Sadly, “in the long run, we are all dead”.
um... no. and it's just PV, there's no net.
look at the pattern of cash flows
Currently you can replace gold with oil: say, Saudi Arabia could literally exchange many things it imports to oil, which can be nominated in USD to accommodate for the fluctuating monetary price of oil, but could be nominated in barrels directly, in a barter trade. They won't see this oil back, even e.g. as plastics made out of it, and they're fine with that.
The US can (so far) replace the gold and oil with USD, in cash, investment, or even credit purchase form, because there's enough demand for US cash as a store of value and a currency to trade with non-US entities, and enough trust that the US is going to service its debt, so it's an investment. The US may (effectively) never receive much of these USDs it sends abroad back; they are still a good deal in an inflationary fiat-currency economy. This pump continues to work as long as things like Silicon Valley, Wall St, and the US military continue to be world-dominating in their respective areas. (And this is one reason why isolationism is a silly policy for the US, toxic for its economy.)
Money, e.g. gold, has a very special quality: it's accepted in exchange for any goods. It's the ultimate "narrow waist" of goods exchange. This gives money a very special status among commodities.
As a general rule, this is false. Mexican importers do not pay for U.S. goods in pesos. With few exceptions, importers have to sell their local currency on the market, exchange it for the exporter’s currency, and pay for the goods with that.
Some exporters will accept the importer’s currency as an accommodation, but they’ll just sell the currency to exchange it for their own, because they have to pay for everything at home with the local currency. If I were a U.S. exporter, I couldn’t pay for my groceries with Euros.
If you’re going to argue any more on this subject, please come armed with reputable references.
I would advise you to kindly take the L here and please stop trying to weasel your way around being wrong. People make mistakes; it’s how they respond when being confronted with their errors that demonstrates their character.
>you: As a general rule, this is false. Mexican importers do not pay for U.S. goods in pesos
initial conditions: americans have only dollars. mexicans have only pesos.
american sellers demand to be paid in dollars. any mexican who wants to buy american goods must convert their pesos to dollars. where do they get dollars? see initial conditions, they must get them from americans by sending their pesos overseas.
it's that simple.
now, when you run these economies with several million people importing and exporting in both directions, sure, there would be dollars in mexico and pesos in america. but why would you complicate a simple analysis with all of those other transactions when the simple case influences the outcome in the right direction and makes it easy to see what's happening?
This thread is over. I asked you to come back armed with references to support your claims and instead you continue to spout nonsense. Currency exchange simply doesn’t work the way you describe, full stop.
currency exchange can work many different ways, but it can't violate thermodynamics or fundamental laws of physics. It also cannot violate the axioms of math, which is what I described.
If a Mexican wants dollars, they need to buy them from somebody who has them. Even if there are billions of dollars in Mexico, if Mexico is exclusively importing from the US forever (which are the conditions of the question above) those billions of dollars will be transferred to the US and Mexico will run out of that supply of dollars and will have to find some new way to get them from the US.
https://en.wikipedia.org/wiki/Gold_standard
https://en.wikipedia.org/wiki/Bretton_Woods_system
https://en.wikipedia.org/wiki/Jamaica_Accords
It might be that what you’re talking about is the balance of trade, which is related to, but not the same as currency exchange. But if that’s what you’re talking about, those are the words you should be using.
it's not that I am talking about balance of trade, it's that the orignal question was about balance of trade:
owebmaster 3 days ago on: Mercantilism https://news.ycombinator.com/item?id=43589882
>and what does Milton Friedman say about a country having enough money to import without export?
he didn't say "a person", he said "a country", that's balance of trade.
so I explained why, by looking at currency exchange, we see that a country cannot engage in perpetual importing without export
you say:
>The exporter will acquire dollars from a currency trader who will sell dollars to them in exchange for pesos at the current market rate plus some premium.
if a country contains no exporters, only importers, the market for dollars or pesos will continue to tilt more and more in one direction. You don't need to model a world market of currency trade to see this, imagine a market with no currency traders (a service industry) but instead a market where you have to do-it-yourself exchange of currency. you will see the same impossible situation of currency flow all in one direction that it essentially consists of printing money till it's worthless
we don't even need currency at all, I could base my argument on barter, but he said "a country having enough money" and money brings currency into the question.
Edit: Alright, by reading the link, what Friedman means, I think, is that a country still need to export more than import, but should export just the minimum enough to pay for the imports. In volume (so I'd guess manufactured products not commodities).
US has been running a trade deficit for only the past 60 years, since the Nixon shock which is probably very related.
While on paper the US is per capita wealthier today I think that’s more to do with ponzi economics.
It is still the most developed economy but with a healthcare and education expense bigger than any other country while the citizens still need to pay a fortune for it.