google.com, pub-6007374308804254, DIRECT, f08c47fec0942fa0
More
  • Home
  • Economy
More
  • Home
  • Economy

On U.S. Government Indebtedness and the U.S. Trade Deficit


Here’s a note to the great economist Tom Willett.

Prof. Tom Willett
Claremont Institute for Economic Studies

Tom:

Thanks again for your kind note about my letter of earlier this morning. You ask – reasonably – would the concern about U.S. trade deficits “hold if the trade deficit is a result of a fiscal deficit?”

The answer is no, at least not in a significant way. As citizens, Americans’ net worth is indeed reduced – and reduced irresponsibly – by the U.S. government’s fiscal incontinence. But two points are worth noting, neither of which you’ll disagree with.

One is based on the fact that the U.S. government’s reliance on borrowed funds is driven overwhelmingly by domestic political considerations (see Buchanan and Wagner!) and not by foreign trade. Even if, contrary to fact, every dollar of U.S. trade deficits was used by foreigners to buy U.S. Treasuries, pointing to large and persistent U.S. trade deficits as a reason to have that same irresponsible government obstruct Americans’ trade would be wrongheaded. The government is unlikely to become more fiscally prudent if it forces its citizens to buy fewer imports.

The second is an empirical fact. Today, outstanding U.S. government debt is just shy of $36.22 trillion, approximately one-third of which (or roughly $12.07 trillion) is held abroad. So let’s (as is reasonable) subtract this debt owed to foreigners by the U.S. government from the net worth of U.S. households. With 132,216,000 households today in the U.S., the average per-household indebtedness through U.S. government bonds to foreigners is $91,290. Because the average real net worth of a U.S. household, excluding this government-induced indebtedness, is $1,212,974, if we subtract from this net worth the amount owed per household, through the government, to foreigners, we end up with the average real net worth of a U.S. household today being $1,121,684, or 207% larger than was the average real net worth ($364,893) of a U.S. household in 1975, the last year in which the U.S. ran an annual trade surplus.

Sincerely,
Don





Source link

Recent Articles

How Innovation Is Changing Finance

The financial landscape is undergoing a seismic shift as digital transactions redefine how we exchange value. Gone are the days of waiting days...

Tax and other pitfalls await when you inherit real estate

Breadcrumb Trail LinksPersonal FinanceJason Heath: Unless you plan to use the property, ask yourself whether you would buy it with an equivalent amount...

Credit card delinquencies declined at faster pace in February

As stocks tumble and inflation remains stubborn, one economic indicator is heading in the right direction: credit card delinquencies.In February, 30-day delinquencies were...

Aircraft Caught Fire After Landing in Denver, Sending Passengers onto Wing

A fire on an American Airlines plane after it diverted mid-flight and landed at Denver...

What Elon can learn from the original Doge

As a tourist, the only reasonable response to Venice’s all-consuming beauty is to gasp in admiration after rounding every corner. As an economist,...

Related Stories

Leave A Reply

Please enter your comment!
Please enter your name here

Stay on op - Ge the daily news in your inbox

google.com, pub-6007374308804254, DIRECT, f08c47fec0942fa0
google.com, pub-6007374308804254, DIRECT, f08c47fec0942fa0