If individuals comprise the U.S. economy, and they do, how could the U.S. have a trade “deficit”? It’s a useful question when it’s remembered that as far as individuals go, all trade balances. We get in return for what we bring to market.
Yet the U.S. as a country still runs a massive trade deficit. What’s the story behind the statistic? It’s really pretty simple. While the import or export of shirts, socks, t-shirts, computers and cars counts in these trade calculations, the export of shares in corporations does not.
In which case it can be said that the U.S. is a magnet for global savings. Workers and investment institutions around the world want returns on their savings, and it’s in U.S. companies that savers have the best chance of achieving returns. In other words, one of the biggest American exports is shares in the world’s greatest companies, but the export of U.S. shares once again does not count in the trade calculations. The U.S. trade “deficit” is a function of massive savings inflows from around the world.
This is a beautiful story. And a peaceful one at that.
Let’s start with the beauty. For the longest time retirement was associated with death. Paraphrasing the late, great Florida State football coach Bobby Bowden, there’s only one big event after retirement. Readers can guess what Bowden was referring to.
Thankfully it’s different nowadays. And the difference can be found in aggressive savings for retirement not just in the U.S., but around the world. In a global sense, top U.S. asset managers including Vanguard, T. Rowe Price, BlackRock, Charles Schwab and numerous others increasingly have offices in countries that span the globe. Retirement saving is a global concept because those global savers recognize that they want to be well taken care of during retirement. Put more plainly, global savers want to achieve impressive returns on their savings so that their years of not working, working less, or pursuing all-new careers, will be supplemented by the fruits of savings well invested. A world increasingly defined by life free of the financial pressures related to living after working is a beautiful one. See Bowden up above if you’re confused.
Yet there’s more. To see why, never forget that no one just saves and invests dollars, pounds, euros, yen, yuan, Swiss francs, or name your currency. More realistically, savers are importing equity in corporations around the world, the income streams of corporations around the world, or both. And as the amount of global savings in pursuit of a better future grows, so grows the import of stocks and bonds from the world’s greatest companies. Here’s your peaceful future.
Seriously, who among us wants the country we live in at war with other countries where our savings are parked? Hopefully the question answers itself.
Looking at the above question in a more historical light, the free trade movement has long been associated with the peace movement. And for obvious reasons. When trade among individuals around the world is free, the individuals freely trading have a rooting interest in the economic health of other countries. Who wants to aim guns and bombs at their best customers who, by virtue of being our best customers, are also good providers to the productive of goods and services? Who indeed. Free traders have long properly believed that the more people in countries are interconnected in an economic sense, the more that peace becomes likely given the immense cost of war.
The exciting thing is that retirement savings powerfully drive the economic interconnectedness that free traders have always sought. When we save, we’re merely exposing our wealth to the world on the way to ownership of global progress. War naturally impairs the very global progress that investors clamor for. Yes, war is bad for savers.
Which brings us back to the beauty of retirement savings. Precisely because our future comfort is rooted in the success of corporations and commercial arrangements that are the picture definition of global, our desire for global conflict declines. It’s too damn expensive. Growing retirement savings happily make it more expensive with each passing day.
Republished from RealClear Markets