This is broadly true for any division of land with a single currency but it’s not as if going to tiny city states with unique currencies is also a good idea.

You could have more currencies than states. That is how it used to work in the US.

> how it used to work in the US

For a definition of “work” which normalises constant financial crisis.

Frequent financial crises. Constant financial crisis better describes our dying small towns.

> Constant financial crisis better describes our dying small towns

Financial crises are characterised by assets suddenly losing their nominal value. Our dying towns are in structural decline. Not financial crisis.

The balance of payments is always self-stabilizing. The trade component can only have a non-zero integral when somebody is injecting or removing money from the economy by some other means.

What really means that no, economical dead zones have no relation at all with the balance of trade. And also, the balance of trade predicts almost nothing and is controllable by policy, anybody focusing on it is just throwing a red herring and hopping people don't look at actually important things.

(What doesn't mean that currency unification doesn't cause dead zones. I know that this explanation is wrong, I don't know if it happens or not.)

>when somebody is injecting or removing money from the economy by some other means.

Which should be considered the normal state for an economy that with growth and production.

The issue is that a negative trade deficits are sustainable, but come directly out of the wealth growth of the importing country.

If you have $2 of value per year, and loose net $1 across the boarder, you never accumulate wealth.

That's a little flattened because oftentimes that $1 will go across the border in exchange for ownership of foreign assets.

Yes, but the principle is the same for how a perpetual deficit can be maintained.

A subsistence farmer can grow enough for themselves. It they make extra each year, they can buy something from outside each year, continually running an import deficit.

Wealth is not money.

No country accumulates money in any significant way. Neither loses it.

What are you talking about? Countries create and change the amount in circulation all the time.

No country accumulates external money. The Eurozone ones surely don't, because people mostly don't accumulate money (your bank doesn't hold a lot of it), and the ones that have their own money don't accumulate any impactful amount of reserves because those are expensive.

Im not sure how this relates to my point.

Im talking about wealth, GDP, capital, and trade. These things are measured in currency, but saying a country is hording a currency.

If country A uses all of its surplus production beyond subsistence to import alcohol from country B, and country B invests all that money on education, infrastructure, and productive capital, you would expect different outcomes.

Country A can humm along with a perpetual trade deficit forever, but there is an opportunity cost.

The entire thread is about currency. From the first post.

If you meant to talk about wealth, real GDP, and real capital, you can... you know... reference those things on your text. Because every single thing upthread is nominal and about money changing hands.

Do you want to know how Portugal can get a positive trade balance (a nominal concept)? They just need to kill tourism and the unbalanced inflow of salary and pensions. Just destroy their natural and cultural attractions and make the place so bad to live that no foreigners will want to go there. Easy.

Now, we can talk about opportunity costs...

I think you are confused by what a trade balance is. Someone coming to your country and spending money is not a trade deficit.

A trade deficit is buying more goods and services from outside than are sold outside.

I was trying to explain to you how a negative trade balance can be sustained, but it seems like you dont want to hear it.

Take care.

>The trade component can only have a non-zero integral when somebody is injecting or removing money from the economy by some other means.

People late in their careers are buying imports, people early in their careers are leaving the country. That's as clear of a case of the integral going negative as I can imagine.

"By some other means" literally means that how people trade can't impact the balance.

People leaving the country carrying money is an example of those "other means", people buying imports isn't.

Either way, it's a bad number to even look at. It meaningless.

I feel this has also been a challenge for Greece among other places. Can they adapt within the economic zone, say to become tourist havens while the bigger states provide industry and services? Should they leave the Euro?

Greece should have never joined the Eurozone, and are basically a middle income country despite their high GDP per capita (median household incomes are comparable to Mexico and Malaysia).

That said, leaving the Euro would be too economically traumatic for Greece at this point.

What does ‘ exchange rates can't stabilize the balance of trade’ mean?

If the US is trading with the EU, say, and the US is importing too much and exporting too little, eventually that affects the exchange rate between the dollar and the euro. That adjusts in a way that somewhat counteracts the trade imbalance.

But if Portugal imports too much from France and exports too little, and they're both using the euro, then there is no exchange rate to adjust, and so you're just left with the trade imbalance and no adjustment.

So what, the exchange rate in that case would change so US consumers lose buying power for EU imports as a sort of automatic customs fee and as a result would prefer locally made alternatives?

I would question how well that works outside completely generic goods that you can buy anywhere, since with economies of scale consolidating production there is often hardly any alternative anymore.

Also, feels like there could be a way to manually address the balance without reducing people's standard of living.

The balance is not maintained for individual goods, but rather for the whole market. If the EU is better than the US at manufacturing everything, the exchange rate will fall until the US can at least do one thing cheaper. Exchange rates don't help raise people's standards of living, but they do prevent countries from becoming economic dead zones.

But there is an adjustment in the total wealth owned in aggregate by those in Portugal vs. France, which is what’s important at the end of the day, right?

Eventually those in Portugal will not have enough wealth to import above their exports, depending on how much stored wealth they have in aggregate.

So it’s still guaranteed to balance out on a century timescale…

The end states are different however.

>So it’s still guaranteed to balance out on a century timescale…

Balance in what sense? In terms of trade, countries can perpetually run a deficit if they share a currency. Wealth isnt zero sum and is continually created. This can be used to pay a perpetual deficit at a cost to growth.

Isn’t it the relative level that decides the balance between imports and exports? Not the absolute level of wealth?

relative level of what?

I dont understand your question.

Relative level of wealth available for importing…

I see. Even if you have little wealth, I dont mind taking it all. It just means you cant buy much.

Imagine of two families. Whenever one gets money, it buys food from the other. The 2nd keeps taking the money and investing in their garden, making it bigger and more efficient.

IF they share a currency,

How can their be a ‘perpetual deficit’ in this case? Or in the case of Portugal and France trading?

Eventually one party will exhaust all their available resources, be that money, gold, desirable trade goods, trust, credibility, etc… and won’t be able to run a deficit anymore.

Countries continually produce new value. If one party has a gold mine, or scientists, or workers, or anything that produces net positive value, it generates wealth. If you retain that wealth and reinvest it, it can compound and this is called economic growth.

Lets say you, with your human labor, can use 10 bricks to produce 20 bricks. If you do this every year, your wealth grows. first 10, then 20, then 40, then 80, ect.

In this senario, You can trade with your neighbor and run a 10 brick deficit every year, but you wont exponentially grow your production and wealth. You will have 10 the first year, make 20, trade away 10, then end up where you started. You are sustainable forever, but not growing.

Your house will remain small, and the house of your trading partner will grow ever larger.

Yes… but these Portugese bricks have to be somehow better, in some aspect, than French bricks, for them to be traded in the first place.

Be that quality, quantity, availability, pricing, etc…

Eventually Portugal will exhaust all it’s bricks, and future brick opportunities, that are better in some aspect, relative to French bricks and French future brick opportunities.

And when that happens with every possible thing and opportunity in Portugal, relative to French things and opportunities, then the trade deficit naturally disappears.

You're focusing on the quantity aspect of the metaphor. Reinvesting can not mean only more bricks, but also better. But quantity also may helps sell them cheaper than your competition.

In any possible scenario, be it quality, quantity, and so on, there has to be some advantage of some kind for the trade to happen in the first place.

of course, It can be cheaper to import foreign goods than making them at home. Thats almost always the case with trade deficits.

That is beside the point of what the long term consequences of running a trade deficit are, if they are sustainable, and how currency exchange impacts these factors.

Why do you think it’s besides the point?

China can produce most things cheaper than anyone. Economically, it's pointless to compete with them. However, if too many think the same, you get bottlenecked and compete for access to the supply, which raises prices. You bevome also politically subservient to China.

Value and wealth are not zero sum. It isnt just traded back and forth. It is produced

Humans create new value through labor. It is a renewable resource and you don't run out.

Exchange rates are determined by markets based on supply and demand, with demand being based on things like investment opportunity, as well as structural demand such as for petro-dollar oil payments.

Currency markets are mostly too big for governments to be able to manipulate (e.g. George Soros & GBP).

The market can adjust the exchange rate between the US and the EU, but not between the Portugal and Spain. This is in a sense the ultimate in government currency control, and if 1:1 is not the exact ratio that the market would have set, one of the two countries will be emptied out.

If the Portuguese economy was booming relative to Spain, then "the market" (investors) can still take advantage of that by investing in other Portuguese assets such stocks and real estate.

If a government wants to address a trade imbalance then import tariffs is one way to do it - or policy changes affecting cost of goods produced for export.