Author: Herbert Grubel

Publisher:

Published: 2018

Total Pages: 3

ISBN-13:

US trade policies designed to increase employment by balancing international trade with the rest of the world will fail to reach their objectives as long as the current large fiscal deficit exists and net imports are needed to compensate for the resultant domestic excess of demand over production.While the government's trade policies will fail, they are endangering a profitable business that is based on the world's confidence in the future stability and value of the exchange rate, credit-worthiness of the federal government and the growth and relative size of the US economy in the world.This business involves the literal printing of US currency notes acquired by foreign agents who use it in legal, illegal and underground transactions as well as a store of value. In 2017 the holding of US currency (mostly $100 notes) held outside the United States increased by $200 billion. Foreigners paid for these notes in exchange for goods and services of equal value. Since it costs virtually nothing to produce the notes, the $200 billion is a net addition to US national income.Foreign central banks in 2017 held $6.1 trillion in short-term US Treasury securities requiring the payment of interest much lower than the interest on longer term assets and investments the US Treasure can acquire with the funds received upon the sale of the securities to the foreign central banks. Assuming the difference in earnings on short and long term assets to be four percent, the US Treasury in 2017 earned $244 billion, which is used to reduce the fiscal deficit.