Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog



The Egyptian Trade Deficits
Howard Richman, 7/15/2013

On July 4, writing on  his blog, the modern day Spengler (David P. Goldman) had an excellent posting (Dismiss the Egyptian People and Elect a New One). He understood that Egyptian trade deficits were contributing to the huge demonstrations that led to the Egyptian coup. He wrote:

Starvation is the unstated subject of this week’s military coup. For the past several months, the bottom half of Egypt’s population has had little to eat besides government-subsidized bread, and now the bread supply is threatened by a shortage of imported wheat. Despite $8 billion of aid from Qatar and smidgens from Libya, Turkey, and others, Egypt is struggling to meet a financing gap of perhaps $20 billion a year, made worse by the collapse of its major cash earner — the tourist industry. Malnutrition is epidemic in the form of extreme protein deficiency in a country where 40% of the adult population is already “stunted” by poor diet, according to the World Food Program. It is not that hard to get 14 million people into the streets if there is nothing to eat at home.

He went on to point out that Egypt needs loans badly and will likely get them from the Saudis and the United Arab Emirates, whose leaders refused to bail out the Muslim Brotherhood for a good reason. As Spengler puts it:

The Saudi monarchy hates the Brotherhood the way Captain Hook hated the crocodile: it is the only political force capable of overthrowing the monarchy and replacing it.

The Saudis are a trade surplus country. They have been compiling huge foreign exchange reserves through their policy of pegging their currency to the dollar and buying all of the excess dollars in the foreign exchange markets that their oil exports earn.

Meanwhile, as a result of trade deficits, the Egyptian people need loans simply in order to eat. Those loans, in turn, drive up the exchange rate of the Egyptian currency, making it even less likely that Egypt will be able to develop its own food supply, or develop the exports it would need in order to buy imports without credit.

Egypt, Greece, Cyrprus, Portugal, Spain and Italy are all in the downward spiral caused by trade deficits. They are begging loans, but those loans won't help them recover, they'll just help them meet short-term needs. 

There are two tenets of modern mercantilism. One of them is that hoarded rreserves equal power. The modern mercantilists, including China, Russia, Japan, Saudi Arabia and Venezuela, maintain trade surpluses in order to gain power for themselves and destroy the power of their adversaries.

The second tenet of modern mercantilism is that by sacrificing consumption today they get more wealth and consumption in the future. Meanwhile, those to which they lend money gain extra consumption in the present, but at the expense of less consumption in the future.

Foreign loans come at a high price. They result in economic and political decline and make the receiver of the loans ever more dependent upon continuing loans. Unfortunately, many trade deficit countries find themselves in a position where their short-term needs require loans. They are willing to sacrifice their long-term prosperity and power in order to get a quick fix today.

Incidentally, the unrest in Egypt should be good for the United States. Saudi Arabia and the United Arab Emirates will be lending their reserves to the Egyptian people who will be spending them, often on American products. In the short-run, the dollar will fall and U.S. interest rates will rise, resulting in less consumption. but as U.S. trade moves toward balance, the U.S. will get more investment in its industries.

If the U.S. leadership ever decides to think long-term, it would enact a scaled tariff to balance trade. Requiring balanced trade would stop China, Russia, Japan and Venezuela and the other mercantilists from running intentional trade surpluses with the United States. Although we would get less consumption in the short run, we would get more consumption, more wealth and more power in the long-run.

Your Name:

Post a Comment:




  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Archive
    Sep 2017
    Aug 2017
    Jul 2017
    Jun 2017
    May 2017
    Apr 2017
    Mar 2017
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015
    Apr 2015
    Mar 2015
    Feb 2015
    Jan 2015
    Dec 2014
    Nov 2014
    Oct 2014
    Sep 2014
    Aug 2014
    Jul 2014
    Jun 2014
    May 2014
    Apr 2014
    Mar 2014
    Feb 2014
    Jan 2014
    Dec 2013
    Nov 2013
    Oct 2013
    Sep 2013
    Aug 2013
    Jul 2013

    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Categories:
    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term
    Environmental Regulation
    Real Estate Taxation
    Trade

    Miscellaneous

    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • TradeReform.org
  • Votersway Blog
  • Watt's Up With That


    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]