Tariffs, trade deficits, and budget deficits are in the news. Sadly, despite the coverage by the media I’d wager you still know very little about what the issues actually are – just that certain folks think they are good or bad.

Let’s fix that, shall we?

Tariffs. Tariffs are the easiest to understand. They are a tax on foreign goods, as a means to combat the advantage of producing goods in a country with a low cost of living. It’s hard to compete with Chinese goods when we have OSHA and labor laws and a higher standard of living than they do. Tariffs have three impacts on our nation:

1. Higher prices. We pay more because we don’t get to buy cheap goods. This lowers our standard of living.

2. More tax revenue. Instead of cheaper goods, the government is taxing us through increased prices on foreign goods to make homegrown goods more competitive.

3. Made in the USA. Tariffs are designed to bring jobs back to the US, assuming we have the know-how and resources for producing the goods in question. This eventually increases our standard of living and the long-term stability of our economy.

Tariffs are good if they make it unprofitable for companies to use slave labor and if they help to stabilize our economy. They are bad if used as a political weapon.

Budget Deficits. We spend more than we have each year, and that currency has to be printed into existence by issuing bonds. Just like people, the government needs to go to the bank and ask for a loan. That bank is called the Federal Reserve. The difference is that they are the personal bank of the US and there’s no money in their bank. They just make up dollars as needed. This is the exact same way dollars are printed into existence when you take out a loan except the bank is buying the bond and they are pretty picky about who they give loans to (hopefully). With our government, anyone can buy that bond. And given the amount we go into debt and the homegrown demand (savers and businesses) for US bonds, we need foreign buyers.

The real sick part of our monetary system is that it’s impossible to balance the budget for any real period of time. I’ve hinted at this before, but it comes down to this: our system creates debt faster than currency. Any attempt to balance the budget for any period of time results in deflation. Deflation is good if you have a growing economy using true money of intrinsic value (like silver or gold). It’s bad when your currency is debt-issued and the whole economy relies on debt with the assurance that tomorrow’s dollar will be worth less than today’s.

We need some amount of deficit spending to keep the system going, and eventually it will fall apart.

Trade Deficits. There’s too much debt (US bonds) for Americans to buy themselves, so we export our debt overseas in return for foreign goods. (They buy the bonds with the dollars we gave them for their goods). That’s called a trade deficit when more stuff comes in than goes out. It doesn’t matter that we’ve printed those dollars out of thin air – the demand for dollars exists because all international settlements are in US dollars (the Swift system) and oil is bought mostly in US dollars. This is the real issue. China and Russia are undermining the Dollar Standard. They don’t need a military if they can collapse the Dollar. That’s what they are up to right now – destabilize us with political tension and circumvent the Dollar with gold backed currencies and oil purchased on exchanges not using US dollars.

Trade deficits are how we fund the budget deficits we have to have. Russia and China know that; the new Cold War is economic and they are crushing us because we don’t even know they are fighting us.

That’s our crumby system. All you can do is posture yourself; the train wreck is inevitable.