Federal Reserve Taxes On The Rest Of The World
I was listening to Free Talk Live this morning (1/10/07 episode), and they were talking about Hugo Salinas in Mexico, and his attempts to remonetize silver down there. It led me to do a little investigation on Salinas, as he pointed out (accurately, IMHO) the fact that the US is actually benefiting from our trade deficit. Other countries are sending us goods, and we’re sending them pretty little green pieces of paper that become more worthless every day.
It led me to an article Salinas wrote in 2001. And it explains something that makes a lot of sense. While the Lou Dobbs types are haranguing America for our trade deficit, they miss the point: America benefits greatly from the trade deficit! They think America is getting the short end of the economic stick, when in reality we’re getting something for nothing. Those guys think America is exporting our wealth, but when it comes to money, all we’re doing is exporting the promises of our government. If you’ve paid any attention to American politics, you know exactly what those promises are worth.
When it comes to the trade deficit, I’m not an expert. I’m not an economist, and have never claimed to be. But I’m an intelligent guy, who can usually tell when he’s being lied to. When I listen to the Lou Dobbs types, what they say seems like it might make sense, but there’s an underlying feeling that something is missing. When I go read Coyote Blog, or read the below piece by Salinas, though, the missing piece shatters the explanation of Dobbs. This actually makes sense.
Excerpt from Salinas below (emphasis original), in a piece titled “What Really Killed Argentina?”:
With a dollar that did not have to be redeemed, as of 1971 the U.S. was free to expand credit out of nothing, and this expansion of credit resulted in conditions which led the American people to believe themselves superior in many ways, to the rest of the world.
As the years went on, credit – debt that is – kept expanding and this expansion of credit, led to more money in the hands of the public. The U.S. public proceeded to buy anything and everything the world had to offer, and send dollars in payment, to such an extent that today, dollars in the amount of some $400 billion a year, leave the U.S. to purchase goods and services, and even for the purchase of all sorts of assets all over the world.
The other side of this “exorbitant privilege” for the U.S., is a corresponding “exorbitant impoverishment” for the rest of the world.
It is essential to recognize that the U.S. trade deficit of $400 billion a year, is really a tax on the whole world, for the benefit of the U.S.
Imports are not really paid with dollars sent abroad. Imports are only actually paid with exports of goods and services. Since the U.S. has no intention of ever actually paying for present and past imports, with goods and services, and bringing back to the U.S. the immense amount of dollars sent abroad through its accumulated trade deficits, that yearly trade deficit amounts to a yearly tax on the rest of the world. The accumulated taxation extorted by the U.S., is huge. (see my article, “Why Are the Americans Smiling?” www.plata.com.mx) The measure of the taxation is the amount of Central Bank reserves – in dollars – which have built up enormously since 1971.
That is what really killed Argentina: U.S. taxation through the monetary system which prevails, and which allows the U.S. to buy things without paying for them.
Since 1971 (barely 35 years), the dollar has lost 80% of its value. During that time, we’ve been bringing in products form all over the world, and sending them these dollars. Other countries think they’re getting the best of the USA, but by sending us these products in exchange for worthless currency, they’re destroying themselves in the process. They’re often doing this at detriment to their own societies, by closing their markets to American exports, thus denying their own people the benefit of imported products.
It’s been pointed out elsewhere that there is a benefit to the first people to get the “new money” when inflation occurs, because they get the new money with the old purchasing power. The last people to get that money, then, are worst off, because they get the money after the purchasing power has been diluted. Well, the first people to get the purchasing power are Americans, and then we send those dollars, after dilution, overseas.
In truth, this isn’t a good system, and the entire world (including the US) would be best off for it to change. But as long as it’s occurring, let’s call a spade a spade. Lou Dobbs think we’re hurting America by importing goods and sending out dollars. In reality, we’re enriching America while harming the rest of the world. We’re likely to continue doing so, until the American system itself collapses.