The Common Defense Of Our Economy

Mercantilism was the economic theory of Europe and the United States during the Sixteenth and Seventeenth Century and a way to enact it is written into the U.S. Constitutions by the powers granted to Congress. It was based on the idea that the worlds wealth was limited. This is considered erroneous by some schools of economic thought. The thing is that these schools also have a globalist bias which their theories support. Some resources are indeed practically unlimited as they are renewable such as labor, farm produce, solar power but they are limited to a maximum output each year. Other resources are limited such as coal, oil, precious metals and they are also limited in output in that they take the expenditure of labor to obtain them. If the output of any of these exceeds the need for them then the rest is not used and in some cases such as labor and food goes to waste if not saved in some way. Since the resource output each year is limited the wealth output each year is also limited. The same is true with those resources that have a limited supply. Renewable resources are for all practical purposes unlimited as long as you do not kill the goose that laid the golden egg.

According to the Institute of Trade and Commercialism Mercantilism was

A once-prominent economic philosophy that equated national wealth and prowess with the accumulation of gold and other international monetary assets, and hence with running a persistent trade surplus. The mercantilist viewpoint has been discredited by modem economics, which has shown that national economic security and well-being are not necessarily related one way or another with trade surpluses or deficits

This is of course true since if you as a person were to borrow money and just pay the interest owned on it you could live better than if you did not borrow the money even though you are going to end up paying more in the long haul. The key is to pay back as little more than the interest as you can and most lenders will be satisfied with the arrangements as they long as they are making enough money off you which they can reinvest. The problems with this is that you are depending on always making enough money and lenders want higher interest payments for longer duration loans.

This brings us to the news that the increase in the federal deficit this year is less than it has been in four years which President Bush touted as proof that his tax cuts for the rich increased taxes. This may or may not be the case but the economy under Clinton who took away tax cuts for the rich actually gave a federal surplus for several years. To really determine what is going on would require a itemized listing of the taxes and how much they each raise for the federal government over the last thirty years compared with the tax policy during that same time. The key point though is I have my doubts that Congress or the President wants to control the deficit since the United States is living better on borrowed money.

The problem is that the holders of our debt might decide they want more interest. This can be fought by selling our dept to other holders that are willing to lend us money at a lower interest rate. Bust what happen if the number of those willing to lend us money shrink in the total amount they are willing to lend us. The value of our money is based on faith and nothing else so all a country that wants to hurt us economically has to do is destroy the faith of people in the American dollar. Can this faith be destroyed if a country undersells our dept to a third party of if they demand we pay. Lets say China decided to undersell their portion of the U.S. dept to Venezuela. What effect would that happen to the faith other countries have in our dollar. If our dollar started to decline in value Venezuela could then demand we pay off their loan to us in full which I do not even believe we have the ability to do. Meanwhile the price of oil could be inflated by OPEC who “lost” faith in our dollar. Would our money be so devalued that a cart full would barely buy a loaf of bread. What would be the politic ramifications of that.

China has a federal deficit of 32.2 billion dollars in one year. I am not sure whether the loan is held by domestic or foreign investors. They have a trade surplus of 120.4 billion dollars in one year which could easily pay off their deficit. The U.S. has a 247.7 dollar deficit in one year a large part of which is owned by foreign investors. The U.S. also has a trade deficit of 799.5 billion dollars. I have no idea what the depreciation is on the goods and services we receive in exchange for our wealth and increasing our debt. That depreciation is how much we are loosing of our wealth each year if we do not have anything to replace it such as renewable wealth. I wonder if anyone will ever get sick of us borrowing money to live at the standard we are accustomed to.

Do you agree with the modern economic theory of the theory of Mercantilism?

Source 1 is the article about how this years federal deficit is lowest in four years.

Source 2 is the CIA Factbook where you can find economic statistics for both China and the United States.