Reprise Dear Mr. Smith, I appreciate your response to “Extracts” from Arts ‘n Mines newsletter as appeared recently at Financial Sense Online (There is No Such Thing as a Trade Deficit). I understand your position, but it sounds very much like the title to my essay, which is not the way I feel at all. I believe wealth and power go where they can be best accumulated, and nourished. This applies as much to the people of the communities you mentioned as it does to our nation. To believe something else aligns with Alan Greenspan’s recent observation that the country does not face a risk of declining real estate values, because “all markets are local.” I agree, markets (and segments of markets) can have localized components, but to suggest that all, or most all can not move to the downside at the same time has to be disingenuous, given the source. If such markets can all rise together, as they have been doing in real estate, they can certainly all fall together, whether that be locally, regionally, nationally, or even globally. And, while we discuss these matters, our nation’s sea ports are critically short of storage space for the shipping containers that come here full of consumer goods, yet have no further use once emptied. Still, I would agree with you, if you would extend your argument by saying a trade deficit does not have to be all that serious a matter where domestic wealth creation can offset it in a healthy way. That is not happening in today’s America, but it is happening in China and India. For them, trade deficits are nominal compared to GDP growth. In point of fact, the world is facing a commodities melt-up, because the demand coming from these turbo-charged wealth engines is draining the components of manufacturing from the rest of the planet. While that may sound overly dramatic, it is a growing and serious concern. Please consider that the world does not have enough available resources to continue growing economies on the scale of China and/or India without impacting the means for wealth creation in other nations. They are winning the global competition for resources, because their growth can sustain the inflationary pressures caused by increasingly higher international prices for such basic materials as oil, copper, nickel and iron, to name a few. Going forward, this is bad news for the economies of North America and Europe, which are not growing in ways that can tolerate the consequentially higher prices for raw materials, and consumer goods. In the meantime, higher costs domestically within China and India can be easily absorbed by rising GDPs that will allow higher wages. That expands their markets internally, decreasing the reliance on exports. Ours and other nations will feel the pinch, as personal income is not so likely to rise with this inflation, and may actually fall. You cite “ownership” as sustaining wealthy communities, yet ownership resides in one of the essential elements of value, or wealth, as outlined in the Principal of Change. Who makes up “ownership,” and where they live changes over time, as does the profile of any market. Consider that China is going to buy Noranda of Canada, a huge mining concern and Northern America’s largest producer of copper, and zinc (among other metals). This recently announced negotiation (which is likely to exceed 3.7 billion US dollars) is considered just the start of a long chain of such major acquisitions, allowing China to secure means of production as cheaply as possible (considering higher prices ahead), and to internalize the operating profits. In general, you see, the weight of “ownership” is moving from West to East, both by purchase and creation (i.e., new industries and growth in existing ones). This is why our trade deficit is a concern. While it is simplistic to suggest the U.S. has to have a balanced trade book, I never said that. What I said was that the currently huge deficit is among the contributing factors behind the falling dollar trend line. And, the facts of history regarding long-term trade deficits of this size weigh heavily against us. I don’t think I want to argue history, nor trends in motion. Again, thanks for your comments. Respectfully, Larry S. Levy © 2004 Larry S. Levy Larry S. Levy is editor of Arts 'n Mines, a private email newsletter writer for special friends, guests and his own amusement on metals and mining shares, and occasionally contributes economic and historical commentary on these subjects to international publications. He is retired from his former practice as a property valuations expert. During that time he held leadership roles in the premiere trade associations, lectured, and published articles on valuation topics. Email |
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