Thank you in advance

What a tool.

“I’ll bet you a lot more than a penny!” Ha, so would I Peter.

As gold left the country for imported goods, the money supply would fall, causing prices to fall. Remember that the amount of money in a country is totally irrelevant. Rapid changes in the amount of money is a different story. But mild changes in the amount of money will cause prices to adjust and commerce will continue as usual. However, there would be some tendency to equalization of trade because as prices fell in the US, our goods would become cheaper to foreigners and we would eventually export something. Paper money keeps our prices from falling and prevents this adjustment process.

In addition, if a country imports a good because it is cheaper than a domestically-produced one, then the cheaper imported good will increase wealth in the home country. The imported good will free up money that can be invested in new businesses or boost the sales of existing businesses.

Take oil as an example. If we were on a gold standard, would the US be richer or poorer importing over half our oil? We would be richer by far, because we can’t produce enough oil on our own, which would make oil very expensive if we didn’t import some. By importing oil, we save huge amounts on the purchase of oil. In turn, we refine oil and turn it into transportation services or plastic goods worth far more than the price of the oil.

The above assumes that all countries in the world are equally free and on a gold standard. If the US has greater freedom and a more dynamic economy than the rest of the world, as it did in the 1800′s, then other people in the world will want to invest their savings in the US and we’ll have a net increase in gold and the money supply will increase.

The bottom line is that a gold standard won’t necessarily cause balanced trade. It might if all countries were exactly alike. But if they differed much, the variables that need to be considered.

Many railroads were built with British capital and British capital goods. America was borrowing to finance expansion with imported capital goods.

Now Americans are importing foreign capital to buy consumer goods.

“Positive, adj.: Mistaken at the top of one’s voice.”
–Ambrose Bierce

One argument he makes, though, is that China, for instance, is spending all its resources servicing American consumer demand and not focusing on domestic demand. He claims that they are poorer for it. At the same time, though, he claims that we’re poorer for not exporting enough goods. You can’t have it both ways. Either it’s better to import more than you export, or you’re not. I suppose maybe he’s saying trade should be “balanced”, but there’s no reason in a free market that would or should ever happen.

I’m anxious for a response to Keith’s question above. I too thought the trade deficit was irrelevant, just as is the trade deficit I have with the grocery store.

“He seems to think Americans buying more from non-Americans is something inherently bad for the American economy.”

In “Crashproof” Schiff expresses concerns about us becoming too dependent upon the manufactured goods of other countries, because he feels that as the middle class in developing countries continues to grow, fewer goods will be made available to us. Therefore, he feels that it’s in our best interest to keep producing manufactured goods.

Peter Schiff is the president of Euro Pacific Capital Inc., a brokerage firm based in Darien, Connecticut. Peter adheres to the principles of the Austrian School of Economics and the Ludwig von Mises Institute [5]. Schiff frequently appears as a guest on CNBC, Fox News, and Bloomberg Television and is often quoted in major financial publications.

Wait, back to reality…