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Gold – Dollar -Trade Deficits All Mixed Up

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COMMENT: Marty; I get these emails about gold and have to wonder how people can keep preaching the same thing for decades and never be correct once. Now they say in a very simplistic manner the politicians argued that endless trade deficits were immaterial because U.S. exceptionalism allowed America to do what it wanted. If foreign leaders refused to accept dollars for commerce as Saddam and Gaddafi did, the U.S. used its military might and CIA for regime changes. Even the strongest adversaries like China and Russia cannot compete against U.S. weapons of mass destruction, so they are increasingly engaging in currency wars of their own to protect their national sovereignty. Is the dollar in trouble as a result?

They seem to advocate the collapse of the USA is necessary so they can make money on gold. Like you said on Global Warming, they want to reduce the population so a good thing would be to stop having children without thinking the birth rate is down so pensions are collapsing.

What you have shown is none of this nonsense is necessary for gold to rise and that trade is a tiny fraction of capital flows. Are these people just mindless? The dollar is the lynch pin holding everything together. Here in Europe we have a lot more problems than the USA. BitCoin crashed because the Chinese were fleeing to dollars trying to get their money out of China. Everything revolves around gold. They can’t see anything else at all.

REPLY: This is the classic problem in analysis. You fit the facts to your predetermined conclusion. They keep praying for the collapse of the dollar to make gold go up. The problem is then, if everything collapses, what good is gold if you cannot spend it because nothing has survived? Very strange theory. If it gets that bad, food becomes number one!

BTW, Saddam and Gaddafi did not reject dollars. I even managed money for Muammar Gaddafi TWICE. Gaddafi and Marcos of the Philippines were commodity traders back in the 1980s. Gaddafi had no problem pouring millions of dollars into accounts to trade. I also knew Milton Friedman who advised that a floating exchange rate would provide a check and balance on the system where fixed exchange rates always failed.

The trade deficit is offset by the capital account reflecting investment. In fact, if a foreign entity BUYS American debt, that inflow goes into the capital account – not trade account. However, the interest payments go out in the Current Account commonly called the Trade Account. There do not even understand the accounting.

The more foreign investors come into America and the repatriate their profits, the “trade deficit” will appear to get worse and it has NOTHING to do with trade. I use to help the Arabs earn interest by trading gold forwards. I helped the Japanese reduce their trade surplus by buying gold on COMEX, shipping it to London, and reselling it there. That then showed up in the Current Account to make it look like they were buying US products. If the Chinese buy gold in the States, export it, then resell it elsewhere, it improves the trade picture politically because the accounting system is flawed thanks to Bretton Woods that merely tracked currency and not the product being actually exported or imported.