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[00:00:00] He wants to crash the dollar. America has historically been in the difficult position that because it is the currency of choice, people buy dollars and they store dollars. So people sell stuff to America, rather than buying stuff from America so they can get dollars into their own country. He wants to reduce the power of the dollar so that people stop doing that. And so because the dollar is weaker, people buy more stuff from America because it's cheaper. This is the Debunking Economics podcast with Steve Keen and Phil Dobbie.
[00:00:32] Well, you know what? He's not far wrong, is he? That's journalist Tim Stanley talking on LBC last week about the problem that America faces. The problem of being the world's reserve currency. And as we mentioned last week, the Bancor could fix that problem. And without it, we are just going to get these distortions. So how could the Bancor work? And is Donald Trump actually going halfway down that road with his tariff plan? And does he really want to see the US dollar fall significantly in value? That's this week on the Debunking Economics podcast.
[00:01:08] So this week, more about, guess what? Tariffs. But also whether Bancor is a good idea. Now you will have heard us refer to Bancor numerous times as a regular listener to the podcast, but I thought we should really deep dive into how it would work in practice because now is the time to talk Bancor more than ever before. No, no, no, no. I think we should call them Trump cause. Trump cause, yeah, exactly. Trump cause, okay. Call them Trumps. So we can get Donald Trump on side.
[00:01:35] Yeah, exactly. If we name it after him, what a fantastic idea. The only thing is then we would live with Trump for the rest of our lives for eternity. That's exactly what he wants to have happen. Yeah, that's all he wants. He just wants a legacy. Yeah, yeah. Okay, well, maybe it's worth a shot. But look, I mean, what became very clear that this is all about, well, first of all, that formula that was presented to us, which we talked about last time, which has got nothing to do with the amount of imposts placed on a country through tariffs.
[00:02:02] It's not reciprocal at all. All it's trying to do is balance the trade. And that became very clear when Netanyahu visited the White House. And the outcome of that meeting was Benjamin Netanyahu saying, well, I'll tell you what, we'll get rid of our trade surplus with the United States and you'll be happy and you'll drop the tariffs. And there's Donald Trump saying, well, yes, because that is exactly what he wants to happen. But in their case, what's their figure? Their trade deficit is $7.4 billion.
[00:02:30] So it's possibly achievable, particularly when they export $22 billion in diamonds, machinery, optical devices. They bring in, obviously, a lot of money from the U.S. as well. The U.S. buys stuff from them. But the deficit is $7.4 billion. That sounds like that would be, you know, a magnitude of the situation. We're in a trillion-dollar economy, so billions aren't, you know. Yeah, particularly when you're getting a whole load of them.
[00:03:00] You can lose them beneath, behind the couch. All they need to do is say, yes, we'll do that. We need a bit of help from you. Can you increase our defence aid and we'll just buy more from you? Problem solved. Yeah, that's right. More weapons. America's got plenty of those to sell. And Israel wants lots of them. So there we are. Indeed. More difficult to do when you've got China. Win-win. Win-win. Well, we'll lose for the Palestinians, but, you know, who cares about those in America? Not anymore, it seems. So, yeah. Lots of people do, but they're not in power.
[00:03:27] So $300 billion deficit for China, though, that's not so easy. That's a bit harder to describe. That's one-third of a trillion. That's getting into real numbers territory. You can't fit that behind the couch. No. $235 billion is the deficit for the EU. That is 20% of all the exports out of the EU actually go to the United States. Cambodia, which I talked about last week because they've got the highest tax, $11.4 billion.
[00:03:54] But $11.4 billion, their trade deficit with the United States, is a quarter of their GDP. So the only way you're going to solve that. So you're not going to have a quarter of their GDP? Yeah. Yeah. So, you know, and they are high levels of child poverty. So, yeah. So basically 40% of all Cambodia's exports go to the – oh, no, more than that, actually. So almost all of their exports go.
[00:04:20] But, yeah, child poverty in Cambodia is 50% compared to, for example, 3% in Finland, 16% in Australia, 16% in the United States. Actually, interestingly, when I was looking at these figures, which is disgusting, 31% for the UK. That's huge. That is huge. Yeah, that's the sign of the UK. The UK is about to qualify as a third world country. Well, when I looked at that, I saw that and thought that was the case. That is huge.
[00:04:44] But anyway, if you look at the impact of the trade deficit on Cambodia, maybe we should be looking at it in the UK as well, in the same line now. Then the fact that you are stopping their exports, which is creating so much of their income, just means you're going to add to that child poverty figure. You're going to make that country worse off for an unattainable ambition of trying to get balanced trade between the US and Cambodia.
[00:05:09] That is how ruthless, callous or just unthinking this US president is. I mean, it's horrific, isn't it? It is horrific, but it's partly because he's got the right end of the stick in one sense. And this is where I differ with modern monetary theory, and I'm quite happy to say that right now because I've actually finally done a little model of the relationship between trade deficits and government deficits.
[00:05:37] But Trump believes that effectively the United States trade deficit is financing the rest of the world at the expense of America. And when you look at the numbers, he's dead right, not so much the numbers but the actual monetary flows. So he's got that right. Right. Well, talk us through that then. Because the obvious question is how did they get into this situation? Because the deficit, by the way, has mushroomed over the – well, it's interesting.
[00:06:03] It's particularly mushroomed over the last couple of months because obviously everyone's trying to get stuff into America before these tariffs were applied. The moment he became president, all of a sudden the deficit that he was trying to correct got worse. But that was a short-term measure because everyone could see what was coming. But up to that point, it was $48 billion in April 2015. That was the U.S. trade deficit. Ten years later, $120 billion.
[00:06:31] So it has just been getting progressively worse. So why? Why has America got this big trade deficit? And is it everyone else's fault or is it their fault? Well, it's their fault. But it's actually a fault of a particular American called Harry Dexter White, as you can go back to the foundation of the Bretton Woods Agreement, which was the beginnings of the post-World War II financial system.
[00:06:54] And as you and I both know, at that meeting, Keynes came along with a proposal for what he called an international clearing union or ICU using a currency that would be made up for the sake of trade called a bank call. And he lost the argument over it, not on intellectual grounds, but on sheer power grounds with Harry Dexter White, who was the United States representative there. And he wanted the American dollar to take over.
[00:07:20] Now, the argument that Trump – that Keynes was being propelled by is fundamentally the same one that Trump is following now. It's saying trade deficits reduce monetary demand in the country running them. Trade surpluses benefit the country running a trade surplus, which is the exact opposite of what monetary theory claims.
[00:07:45] Well, let's come back to that because, I mean, it seems obvious that actually if you sell a lot of stuff, you'll be the beneficiary. If you're buying stuff and paying for it with debt, for example, then you're going to lose out. But why did that decision about the U.S. becoming the reserve currency – why has that resulted in America having these massive deficits? Well, in fact, there's actually – this is something where – what's his name? Scott somebody, rather. Hang on a second.
[00:08:14] Steve – no, Steve. Steve Moran. Right. Who is the chairman of the Council of Economic Advisers to Trump. So he's somebody – Trump's appointed to advise him on economics. And he's come out with a statement just April 7th, so the day before we record this. We're talking about – and I'll read this. It's worth hearing what he has to say in the opening here, OK? Today I'd like to discuss the United States' provision of what economists call global public goods for the entire world.
[00:08:43] First, the United States provides a security umbrella. Second, the United States provides dollar and treasury securities. He goes on. Both of these are costly for us to provide. On the defence side, I make heroic risks, yada, yada, yada. Well, I'll debate that some other time. God bless them. But he says – OK. On the financial side, the reserve function of the dollar has caused persistent currency distortions and contributed, along with other countries' unfair barriers to trade, to unsustainable trade deficits.
[00:09:11] These trade deficits have decimated the manufacturing sector and many working-class families in their communities to facilitate non-Americans trading with each other. Now, on that front, and that's pretty much what Keynes argued. Right, but he's basically saying it's making the U.S. dollar too strong, isn't he? Yeah, that's right, because if you need – like, if you have a national currency that's needed for international trade, then every country on the world that wants to trade, and that is pretty much every country, except penguins. I understand penguins don't do a lot of trade.
[00:09:40] Yeah, so everyone wants that, so it pushes up the value of the U.S. dollar. It pushes up the value. So you've got to buy the American dollar, whether you're buying American goods or not. And he's quite right. That means the American exchange rate gets overvalued, which means American manufacturing starts as a disadvantage to the rest of the world. That's the cost of being the reserve currency. So American consumers, with their dollars, which are worth so much, want to buy something, they buy it from overseas. And actually, you just have to go to the United States to see how expensive everything is to us. You know, from us in third-world countries like the U.K., to go there and find out how much it is,
[00:10:10] you'd be thinking, well, yeah, of course you're going to buy stuff from overseas because it's so expensive here. So they need to devalue the U.S. dollar is what they want. Yeah, and it has to come down. And the easiest way for it to come down would be for Trump to reinvigorate Keynes' proposal for the Bancorp so that you have an international currency rather than using a domestic currency. And this is the mistake that Keynes tried to point out to Harry Dexter White
[00:10:39] because he basically thought we won the Second World War, you know, ignoring the minor contribution of the Russians, obviously. America won the Second World War, so we should take over being the reserve currency from you bombed-out Brits. And the argument Keynes made in reply was, well, if you do that, you'll end up with a bombed-out economy because just like the pound got overvalued when it was the international reserve currency and therefore British manufacturing couldn't compete the rest of the world, it's going to happen to you guys.
[00:11:08] Well, he laughed at that and it's happened. So – and now what Trump is doing, you know, 70 years after, 80 years after the event, he's saying it's too much of a burden. And he's right. But, of course, trying to get rid of it by tariffs in the current situation is just a nightmare, not just for the countries, you know, those penguins suddenly finally got a 99% tariff rate when they tried to export their guano through to Cambodia,
[00:11:37] which is one of the poorest countries on the world, copying the highest trade barriers just because of this ridiculous formula that somebody made up to justify the tariffs. But does America really suffer as a result of this? I mean, they've got – Oh, yeah. Well, I mean – but they are one of the wealthiest – That's where the Rust Belt came from. They're one of the wealthiest nations in the world. They've got – They are, but they'd be wealthier still. They've lost their industrialisation edge and this is what you can see in the data.
[00:12:03] But they are making a lot out of services and people are getting paid very well and the unemployment level is very low and they can afford to have nice overseas holidays because, you know, their dollar goes further. They can buy more stuff from overseas. They're not ex-Rust Belt workers. So this is the area that Trump has managed to pull the electorate away from the Democrats because the Democrats sided with Wall Street, you know, way, way back. This goes back to Clinton, if not earlier.
[00:12:30] And the argument, you know, we've got to – you know, we want the funding of Wall Street and we're going to combine economically sound, meaning conventional economics believes it's sound, type policies with socially progressive policies, which I think they call these days woke. Now, what that meant was you had a de-industrialisation of America. The Rust Belt was a result of lack of investment in the manufacturing side and then shipping those jobs to China.
[00:12:57] The services sector came out ahead, particularly the financial services sector, because everybody needed American dollars. So American financial institutions made a killing providing that finance. But that's great for the wealthy in America, as Gary Stevenson keeps emphasising. It's been biased in favour of the wealthy and screwing the poor. Well, the poor are now getting even. One other way they got even was voting for Trump. Yeah, right.
[00:13:26] But he's trying to fix that by saying, well, OK, the impost goes on everybody else, not on our country. I mean, you could say, look, the reason why the Rust Belt is suffering is because we've allowed the service sector to grow so much. And while the manufacturing sector has waned because we're buying stuff from overseas, we've not done anything about those workers. So rather than saying, well, OK, we need to fix this manufacturing issue, which some people would say, well, those days are gone. You're never going to, for example, you never have to keep on mentioning Cambodia.
[00:13:54] We're never going to produce a woolly jumper as cheaply as they are in Cambodia. You're not going to do that in Michigan, for example. So you're still going to have that issue. And those people are still in the Rust Belt are still going to be unemployed. Whereas the other way of doing it would be saying, well, OK, we need to have a domestic policy to do with tax and incentives and finding a way of balancing the economy. So it's not just a case of the rich get rich, the poor get poorer. That's the American system. It's nothing to do with international trade.
[00:14:22] That's just the way that they tax and their politics. I mean, it's nothing to do with international trade, is it? Well, I mean, it is something to do with international trade. That's made the problems worse. But would it completely be fixed by Donald Trump's formula? Not by the formula, OK? Not by the formula at all. But you'd have a fighting chance of reinvigorating manufacturing and getting the skills that come with that as well,
[00:14:48] because America's being de-skilled as well as being de-industrialized. That could be done by saying, let's bring in the Bancor again. We'll call them Trumps. You know, that's a simple concession to the modern world. So what would happen is you'd set up an international clearing union. You could call it Trump. I'll stop with just the concept itself. Set up an RCU. An oil trade goes for the international clearing union.
[00:15:15] And every currency gets converted into Trumps. So you have, you know, American dollars worth one Trump and say the Chinese revenue is worth half a Trump, for example. OK. And then when you do trade, there's no actual money that changes hands in the Bancor. The idea of the Bancor, let's call it a Trump, you could be positive Trumps or negative Trumps, OK? If you exported more than you imported, and that includes services as well, of course, in the aggregate.
[00:15:43] If your revenue from trade was greater than your imports from trade, then you'd run up a surplus of Trumps at the ICU. Whereas countries that are running a deficit, and that's America right now, would run up a deficit, they'd be an overdraft. And the balance will always be zero. But Trump, this little formula, the clever little trick that Keynes introduced to limit the scale of which trade deficits and trade services reach.
[00:16:12] Because, of course, this is something where there's a zero-sum game, OK? The sum of all trade surpluses or trade deficits is zero, OK? Because one country's surplus is the rest of the world's deficit and vice versa. So what he said was, you're going to charge interest on large deficits and surpluses. That's a question. You know, that's a question. We'll dig down on that when we come back. But it strikes me that in some ways, that's quite similar to what Donald Trump was proposing. Obviously, he was just looking at the United States,
[00:16:41] and he wasn't looking at a, you know, having this clearinghouse. But he was, in effect, saying the same thing, wasn't he? We are going to charge you a tariff if we've got an imbalance of trade with you. Exactly, yeah. There's just a smarter way to go about it, which he could take from Keynes and rename, rather than calling them Trumps. He's halfway there. And, of course, he is just thinking about the United States. So, you know, rather than it being applied in the whole world. So there's an interesting question in itself, isn't it?
[00:17:07] So if everybody was striving to have an equal balance of trade, so zero deficit with the United States, almost every other, because they are such a dominant player in the world, almost every other country would have to fall in line. You'd almost have a balance of trade everywhere, wouldn't you? Which is obviously what the bank or was trying to do. Or it would be like squeezing a balloon, and the bump turns up somewhere else on the system. Yeah. What you need is the system looks at the whole balloon, and that's a global idea, and that's what the bank or was about.
[00:17:36] So when we come back in a sec, we'll dig down on that more. I just want to talk about US debt, because obviously that is very huge as well. So they've got this massive trade deficit, and they've got this massive government deficit as well. So how much of those two are linked to each other? Yep, let's talk about it when we come back. Oh, I was going to do it now, and then we'll talk about the bank or when we come back. But we can take a break now if you want. You're running the show, Steve. Steve, God. Okay, when we come back, we'll look at that. Sorry about that. This is the Debunking Economics Podcast
[00:18:06] with Steve Keen and Phil Dobby. All right, well, we are looking at the bank or, well, we will be. We haven't gotten there yet. We're halfway through, and we haven't done it yet. But we're looking at the bank or today, and whether it's the answer to what Donald Trump wants. And in fact, is he more than halfway there, actually, with his proposal? It just needs to be polished and finessed a little bit. And whether it would have the same impact on global markets in the short term, maybe it would, because it would be just as much of a massive change to the economy.
[00:18:35] But given he's already done that, he's already damaged the global economy, maybe we should go all the way, Steve. But first of all, this idea about the U.S. has got this massive trade deficit and a massive government deficit as well. So how are the two interlinked? So, for example, how much of that government deficit is driven by the fact that they are the reserve currency? Yeah. Well, it's not so much how much it's driven by it as what's the impact to having both.
[00:19:04] Because, and this is where I differ with modern monetary theory, because I understand modern monetary theory. I've now applied that to trade as well. So modern monetary theory argues, quite correctly, that a deficit creates money. So the government spends more than it takes back in taxation. It puts more money into people's bank accounts than it takes out of them. So that simple, logical, obvious point means that if the government spends more than it takes back in taxation, it creates money. Now, I'm forgetting about all the bond stuff that goes with it as well. But I mean, we can knock,
[00:19:34] because there will be people saying, well, that's crazy, because when the government spends money, the issue bonds, the bonds are bought by the private sector. But we've... Which is wrong. Okay, it's bought by the... They don't want to go... We can go into that if you like, but it gets to be more than half an hour. In previous podcasts, we were saying that's fine. They're buying... Those bonds are being bought in the private sector, but the private sector is buying money that was put into the private sector by that government deficit. There we are. There's the full circle argument. Yeah. That's the full circle. I mean, if the bank's buy, then it creates money. If non-bank's buy, then it cancels bank money creation.
[00:20:03] But the money's still being created by the deficit in the first instance. Quite right. Yeah. Okay, so we've got that. So how does that link to the deficit? Okay. Well, this is where I'm going to have a kick at modern monetary theory as well, but I've been putting up with this for a decade. And after recent events, a couple of last year, I'm less willing to kind of... You're starting to get riled. ...put a zipper across my mouth than I have been in the past. You're starting from your mouth soon. Huh? No, you're saying you're starting to get riled. I can tell. There you go.
[00:20:33] I don't get riled, I get even. Anyway, so what I... Say a bit too like Trump for my liking. Anyway, yes, carry on. Thank you. Okay, modern monetary theory has two arguments. One is that governments spend an order to tax. They don't tax a spend, they spend a tax. 100% correct. The other one they make about international trade is to say that exports are a cost and imports are a benefit. Now, this is completely independent of their arguments about money. And what it basically says is if we pay for something,
[00:21:03] we send somebody a piece of paper, a little green note, you know. And if we get something back, we get something solid object. Like, you know, we pay $200 and we get a... Oh, it's now a video camera. And so we're coming out ahead. We give them a piece of paper, we get a video camera back. That's the game. Now, they've never put this into the argument of their monetary analysis, which is what really annoys me. So what I'm going to do, if I can quickly share my screen... Oh, we're not going to go into a formula, aren't we? Let's... Because it's... It's just a table.
[00:21:32] It's just a table. Right, but 75% of our audience are listening in audio only. So let's not... So let's not... Well, it's pretty easy to... I can talk the tables too. So I'm going to insist here. Sorry, mate. All right. Okay, so I'm going to share my screen. This is just for the ones watching. I have completely lost control of this now. Completely lost control. I actually wonder why I'm here. Okay, anyway, let's... Oh, you've got a lot of people. Let's see the table then. Okay, that's the... Hang on, there's the table. All right. Okay, can you see that one? Yeah, except for those people listening on... Okay, so what I've got... Banks having... Basically, there's reserves.
[00:22:02] I'm ignoring everything else banks do. Just looking at reserves. Right. And then they've got bank accounts for firms and households. So I'm just looking at, you know, banks just facilitating economic activity. And then if you have a domestic sale, if a firm in America sells something to a consumer in America... Makes no difference. Because they... The money in the... Yeah. They're spending their money on something that... There's no money creation occurs there. But if you have government spending, then it spends by putting money into bank accounts. Yeah. It taxes by taking money out.
[00:22:31] So government spending creates money and government taxation destroys money. And so the difference is new money in the economy. Yeah. Yeah. Look at exports. If exports occur, that means revenue turns up in the bank accounts of American firms. And that increases the money supply. And if the firm imports, then money gets converted from American dollars into something else. So we don't need a table to tell people that. I mean, it's... It's bloody obvious. Yeah. I get the money theory idea that in your case, you know,
[00:23:00] the video camera we didn't have before, but we also don't have the money. So, I mean, in their argument, they are saying money is worthless. Which is silly because in the other part, they say money is essential. Yeah. You've got, you know, money is essential when they were looking at the government. They say it's irrelevant when you're looking at exports. So I can get the idea... Money is money. Yeah, that's right. But if you completely focus on money and you don't look at resources, then you... Yeah, you've got to look at resources as well. But what it means is that American, if you have an export surplus, then there's money supply happening
[00:23:29] which is being created while you buy another country. Yeah. And that's what's... When you take a... And I've done a little model which I'll talk about on my YouTube channel as well and dependent of the podcast. But what that... When you do it, you look at... If the government... If you have a country running... Running a government deficit so they're creating money domestically and they're running balanced trade, then all the benefit of that money creation occurs inside their own economy. If you're running a trade deficit, the benefit goes overseas and the country exporting grows faster
[00:23:59] than the one that's in the economy. Yeah. So if I make £50,000 a year, I've got £50,000 that I can spend on goods, you know, maybe goods that are bought in this country because I'm spending... You know, I'm earning £50,000. Maybe the country's producing £50,000 worth of goods. But then the government creates a deficit of £50,000 and that suddenly finds itself into the private sector. I'm not producing enough domestically to spend that on. So that money has to be spent overseas. I mean, you're spending more than you're creating within the country if you're adding debt.
[00:24:29] Yeah. Well, what you're doing, you're counteracting the benefit of running a government deficit because the government debt is, as I argue and modern monetary theory says the same, is a record of the amount of fiat money that's created in that country over time. But if you're running a trade deficit, then some of that fiat money creation is going offshore. And in America's case, because it's got a congenital structural deficit because it's
[00:24:58] to the global reserve currency, no matter what it does, it's going to be still caught in that same situation. People have more demand for the American dollar than they have demand for American goods. Yeah. Because so much international trade involves the US dollar. You've got to have it to buy it. It's almost got to go overseas to satisfy that demand, hasn't it? Okay. So, Bancor, the idea then was that you would be penalized if you got way out of kilter either by having
[00:25:28] a surplus or a deficit. So you'd be charged Yeah, that's right. So you'd be charged interest. Your country would be charged interest on the side, very similar to Donald Trump. Your country would be charged interest based on, in either direction, to try and get you to move back. And you'd move back presumably by trying to change the value of your currency. So you'd make your goods more attractive or less attractive based on the cost. This would be a return
[00:25:56] to a form of fixed exchange rate because what would happen is you would have, and this is the way that Keynes designed it, you'd start off with countries having, being allocated a level of Bancor relative to their economy, not as Bancor created for them but a level of, if they go past a certain level of percentage of GDP as their surplus or their deficit, then they get charged interest and that interest gets paid to third world countries. So if you're running a trade deficit or a surplus,
[00:26:27] you get charged interest on that and that interest means that that money now turns up in a third world country's bank account, not yours. So with those Bancor, the third world country getting interest paid in Trumps, let's call them Trumps now, then they could use those Trumps to buy goods from other countries including America, including China, whatever. So what do you get? That would be, so Donald Trump would hate this though because he would be charged interest because they're running a deficit. People would go, well why am I getting
[00:26:57] penalised when I'm already suffering? You would then set up exchange rates in such a way that you give, you would have a lower value for the American dollar because it's running a deficit. You'd give a lower than equivalent value as would have happened back at the time. So the exchange rate between what and what? Between the US dollar and? The US dollar and the Trump which would then mean that there'd be an advantage for America in the valuation of the Trump
[00:27:26] versus other countries. So trades would happen. That would have the same effect effectively as a tariff without needing to impose a tariff. So almost all foreign transactions would involve the Trump. This is the idea that Keynes had everything. Every transaction. Yeah, all foreign currency transactions at the moment involve the US dollar though of course given how... So I'd buy something on eBay from America for example and I'd see that it cost 20 Trumps
[00:27:55] and I'd know what the exchange rate was from the British pound to the Trump. Well you'd still be seeing it in like the consumer you'd still be seeing in domestic currency. You're buying the good you're paying domestic currency but the importer would then have to import the trade balance trade deal that happens through the International Clearing Union rather than through the New York Fed which is where most of these transactions currently occur apparently. SWIFT and all the transactions with international trade apparently go through the
[00:28:24] New York Fed. I'm not sure about that. I've been told that by other people who specialise in this area. But with this you'd be going through an international clearing union instead. So each domestic currency would need to be converted into the relevant Trump valuation depending upon the exchange rate set between the domestic currency and Trump's and then with those Trump's you would then have an exchange between the country let's say it's America buying from China same old story at the moment then there'd be a transfer
[00:28:54] of Trump's from American account to the Chinese account. But the different you'd set it up you'd try to set up the initial exchange rates so that America came up with balanced trade that'd be what Trump could do to crown his reign is to set that up the exchange and then that does the same thing as a tariff for every country on the planet rather than having to do bilateral tariffs and then what happens over time is that if you
[00:29:25] run a trade if you run a persistent trade deficit or a persistent surplus so you continue accumulating a negative balance or a positive balance at the ICU then at some point relative to the size of your economy that'll force you to either devalue or revalue your currency now you can try to make it work with floating exchange rates between the domestic currencies and the Trump's as well I haven't considered that it's feasible Keynes talked about a fixed one
[00:29:54] largely because I think if you didn't do it that way it would be left to central banks wouldn't it through their open market operations and setting interest you'd have to do it through monetary policy which would potentially I mean what it would mean it was free countries up from having to worry about what happens on trade because that's taken care of by another mechanism so they could make their own decisions about government surpluses and deficits and a big huge difference between government deficits and trade deficits
[00:30:24] is that the sum of all trade deficits is zero whereas the sum of all government deficits is whatever it turns out to be every country on the planet can want a government deficit if they wish there's no back living control so say we say we's agreed that we're going to introduce the bank or and let's do it you know given that it seems to be the way of things now let's do it in three days time to give people a time to adjust I'd say give it a year no no no just three days that's the Donald Trump approach if we can introduce these massive tasks and tell everyone they're going to start in a few days then we can
[00:30:54] say well let's do the bank call we're going to call it the Trump and it starts on Wednesday so or next Wednesday Thursday like I'm busy can you make it Thursday morning yeah I've got golf on Thursday can we do it on Friday that's important no we'll have to get the thing before the golf so I can bugger off and not worry about the repercussions so let's take America as an example then so it's got in a month about 100 billion deficit and it's got exports
[00:31:24] of 280 billion so to balance their trade just say they're doing it by just buying in more they'd have to sell another $380 billion so they have to sell a cheap that they can flog $100 billion more and increase their
[00:31:54] exports by a third that would be a significant change that would mean a very weak US dollar compared to where it is now not as a weak dollar as a dollar devalued what Trump is
[00:32:24] devalued US dollar it would mean it's cheaper for investors from overseas to invest so that would help with domestic production so they could increase those next you more tourism so long as you don't mind having your computer confiscated at the border and you're sent back to a Salvadorian jail pardon me I'm getting a bit I'm not going to go to America for quite some time I'm excluded as well we were supposed to go to a wedding
[00:32:54] this year so anyway I wasn't going to go anyway sorry if those people are listening we love you so yeah so that the logic works what debt doesn't matter this is the point again that modern monetary theory has been correctly trying to get through to Trump and certainly Musk who's got the wrong end of the stick on this one well and truly the government deficit is a
[00:33:24] record of how much of your domestic currency has been created by fiat rather than by credit but of course what the big difference is now at the moment a lot of that debt supporting international use of the dollar which is undermining the American economy in several ways this would mean that whatever debt was there was a record of how much fiat money had been created for the use by Americans and that would be you know it'd be a finer use of that debt than what's going on at the moment and I think
[00:33:54] the idea as well with all this interest that was raised which would be quite a lot at the beginning because there's huge trade imbalance as well it tried to sort itself out that money rather than being used to fund America to make America great again it would actually be going to the third world which is all developing countries like Cambodia would suddenly benefit so all those countries which Trump at the moment is destroying and I wait for the consequences of all of this but I can see a lot of hurt then the money would be going to places where it's needed and wasn't this the idea behind the World Bank the
[00:34:24] whole structure was initially based on Keynes' idea but Keynes' idea didn't get carried through so rather than having interest payments on surpluses and deficits which was Keynes' idea of how to finance international development it's ended up being government grants to places like the World Bank things like United States Aid for example now that's been shut down by Trump already but you wouldn't need it because
[00:34:54] the objective originally way back was to have 0.7% of each country's GDP devoted to international aid now with an interest rate on the bank or you could achieve something similar and it would just be a charge on countries that are running surpluses and deficits and not trying to balance their trade Donald Trump's not going to buy
[00:35:38] this
[00:36:09] He might actually object to that. He would want a free one for America. Everybody else has to pay. I don't know. I mean, this is the sort of thing – I mean, I've been trying to get the Bancorp introduced for 30-something years. And this is my first thought about how we might actually finally manage to get it past all the political and ideological nationalist barriers. Well, the world's in complete disruption. Because the damage has already been done. Maybe, yeah. But it would have to – I'm willing to call it a Trump if we get rid of the chaos we've had.
[00:36:38] But – Out of the international financial system for the last 40, 60 years. But while it seems fine on paper, there's the question about whether it would work. And there's also – I mean, and we don't know. I mean, you know, who knows until you try these things. And it's a big risk to try anything this big, isn't it? But also, let's take China as an example. So China's got this massive trade surplus, so 600 billion. It would have to raise the value of its currency. So the impact of that would be it wouldn't export as much.
[00:37:07] But rightly or wrongly, you know, over the last 10 or 20 years, China's approach and its massive increase in exports has driven a lot of people out of poverty. That wouldn't have happened with the Bancorp, would it? It could have happened with the Bancorp because there would have been more stimulus to demand. This is the whole idea that Keynes had. Like tariffs reduce demand, okay? Tariffs means more expensive to buy stuff you don't buy in the first place.
[00:37:31] With the Bancorp, the idea was that – Keynes argued, and this is again contra what modern monetary theory asserts, that trade surpluses, if a country's running a trade surplus, it's exporting its problems to the rest of the world. Keynes was mainly focused on reducing trade surpluses rather than deficits. Deficits, you see, is undermining a country. Surpluses strengthen economy at the expense of the rest of the world.
[00:37:57] So if we'd had the Bancorp system – but also the interest payments on those surpluses and deficits then provided money that could be used by third world countries to buy the goods of other countries, and that was a stimulus to demand. So the basic design of the Bancorp system, the Trump system now, was to stimulate demand rather than suppress it. So China would have been having more people to sell to. It could have done more effectively.
[00:38:25] There's no way that I regard the current system as – So we wouldn't have this sort of – we'd have more diversity. So we wouldn't have this bilateral relations between two countries because there would be so much more global trade happening everywhere. I mean, ultimately, the balance is a global thing with the Bancorp, whereas what Trump is trying to achieve right now is a unilateral balance, you know, Berica balance for everybody else and who cares what happens to other countries' trade balances.
[00:38:53] But the Bancorp was an aggregate thing, so it would be – every country in the world would be encouraged to limit their trade deficits and surpluses to no more than 2% of GDP, whereas at the moment we've got countries running at 10% of GDP. And the myth of the neoclassicals was that, you know, if we deregulate and have a floating exchange rate, price changes will eliminate the trade deficits. Well, that hasn't worked for 50 years.
[00:39:18] And this is something else that Steve from the policy advisor to Trump is arguing, that markets have not reached equilibrium. The neoclassical theories were wrong. He's dead right. Let's try a Keynesian one instead. It breaks until it's done. But I would have – to me, it seems the danger is what you're doing is you're looking at – by and large, you're looking at currency exchange rates as being the – what's going to drive this.
[00:39:48] And so – which is just one measure, obviously. Then there's, you know, how much money is domestically produced in each country and how that's used to try and achieve the – you know, and how much foreign investment and how much government borrowing happens to try and achieve this trade equilibrium and how much of that gets out of kilter. You know, you're using a lot of instruments to try and balance one instrument, if you see what I mean. It might be ideal that everyone has a balance of trade, but maybe it's just unachievable.
[00:40:17] And by trying to force it, you get to a situation where, for example, you start to see countries that are having to create a lot of money, for example, and end up with high levels of inflation. You know, there's lots of that along the way. Yeah, but I mean the current system is a dog's breakfast, and that's what Trump is reacting to. But you take my point. If you try and pinpoint just one metric, then you're limiting the ability for all those other metrics to work in unison.
[00:40:43] Yeah, you'd be forced to be considering what's going to happen to your trade deficit if you stimulate the economy too much. And like that was part of Keynes' thinking as well. If you have a country stimulating its demand, then part of that, as I've shown in that table, part of that goes to the rest of the world and therefore increases your trade deficit, which can then mean you face penalty interest on the trade deficit.
[00:41:06] So countries need to think very carefully coordinating their trade deficits and their government spending and what the private sector does. Yeah, but it goes against human nature, doesn't it? Because most world leaders would see it as a race, wouldn't they? They'd be saying, well, OK, we want to be the – we want to trade surplus. We want to be the biggest producer in the world. But of course, we know that can't happen for everybody. So it's actually sort of like people being more grown up and saying, well, OK, we can't all win. We actually all have to draw.
[00:41:35] So let's have a system where we all finish first rather than some people finish first and some people come last. Because even those that come first are not necessarily doing well in every other way. So it's asking for a maturity of world leaders that I'm not quite sure exists. Yeah, I know. There's parts of it are fanciful. But it's nice to be fanciful, isn't it? And yeah, as we say, the damage has already been done. So why not?
[00:42:04] But the problem is, Steve, no one's talking about it. Well, let's change the conversation then and see what happens. I'm going to whack a couple of posts out on my YouTube channel about this and model it and say, look, that's what you should do, Donald, is go across to Keynes' plan. Only name it after yourself. Right. Fantastic. All right. OK. OK. More next week. Thanks, Steve. Welcome, mate. Bye. The Debunking Economics Podcast.
[00:42:34] If you've enjoyed listening to Debunking Economics, even if you haven't, you might also enjoy The Y Curve. Each week, Roger Hearing and I talk to a guest about a topic that is very much in the news that week. It's lively. It's fun. It's informative. What more could you want? So search The Y Curve in your favourite podcast app or go to Ycurve.com to listen.