• How does Scotch get into America?
• Why does money-printing lead to trade deficits?
• Second passports and citizenship.

Good morning from a summer-like Northern Italy.

Today’s issue is long, so I’ll keep my intro short.

William S, I’m dedicating tomorrow’s entire Rude to your question, because it’s essential, and I can flesh out more of the topic.

In today’s Rude, we see there are plenty of “Jims” who wrote in!

First Things First

Please ask Sean to explain how he went through JFK security and boarded with two bottles of Scotch. It seems to me that they would have to go in checked baggage or be confiscated.

Jim C.

Hi Jim!

Any traveler entering the United States (and most other countries, as I recall) can buy two bottles of alcohol in Duty-Free and bring them through. Duty-Free shopping comes after you check in your bags and before you get to your gate. My mistake was putting the bottles in my carry-on bag, and that’s why security went through my bag. They don’t get confiscated, though I could see by the look in her eyes that my security checker was sorely tempted to take them!

< h3>Our Politicians Help Themselves, Not the Citizenry

"The great Austrian economist Murray Rothbard didn’t think the Fed should exist, let alone be charged with such an important task. By manipulating the money supply and interest rates, Rothbard believed that the Federal Reserve interfered with the market's natural ability to price goods and services, consequently contributing to boom-bust cycles."

Our corrupt politicians are constantly interfering with the market's natural ability to "price goods and services." So, while the Fed may have a bigger hammer, politicians are constantly hammering to help themselves and their cronies that keep them in power. They're all in the kitchen.

Jim T.

Hi Jim,

Yes. Yes. And yes. I don’t have much to add to that other than saying the free ride may end soon - especially if we see a few more hikes in quick succession.

Dollars and Deficits

Every time I read an educational piece, it just raises questions that sit unresolved in my brain until I trip over that thought again. So I kind of understand what you are writing about, as I have seen it before. But there are some basics that I don’t understand, so I am going to choose one.

You wrote:

On the one hand, the global economic community demands an ample supply of reserve currency for international trade and financial transactions. This means the country issuing the reserve currency (the US, in today’s case) would need to run large trade deficits, essentially supplying the world with its money.

Why does it follow that we need to run a large trade deficit? Can’t the USA hold the currency of other countries in exchange for US Dollars?

Or, is that simply going to break down because of the floating nature (severe deflation by money printing) of the other countries' currency?

Couldn’t the USA demand that the other countries' currency be backed up by that country's natural resources or other assets?

This could be like a USA Belt & Road. Possibly giving more USD away but getting something in return. I know I’m not smart enough to think up something new, so the question becomes are we doing this in some form already, or is it a non-starter for reasons I don’t yet understand?

Jim T.

Hi again!

To do this as simply as possible, I’ll use bullet points.

1. Foreign country (FC) wants USD to trade with. How do they get it?
2. FC makes “stuff” that Americans want.
3. Americans buy the “stuff.”
4. FC gets the USD.

The US imports loads of “stuff” in exchange for USD in the above scenario. In fact, it’s usually far more “stuff” than other countries buy from the US.

A trade deficit is when imports are larger than exports. Below is the US trade deficit from the Bureau of Economic Analysis:

The US can and does hold the currencies of other countries. But you don’t want too much of that because those currencies are only helpful when buying that country’s stuff.

A great example of a country having too much of another country’s currency but not wanting any of that country’s stuff is Russia concerning India.

If the currency you’re holding breaks down by money printing (that’s inflation, by the way), it’s much worse. That’s because you can buy less and less of the other country’s stuff.

The US wouldn’t demand any other country back up their currency with real stuff, like gold. If Switzerland did that, the entire world would dump their dollars for Swiss Francs. It’s far likelier the US would invade Switzerland than ask them to back their currency with gold.

Remember, the US isn’t “giving away” dollars. It’s printing $100 for $0.17… but getting $100 worth of goods from foreign countries. That’s why it’s called the “exorbitant privilege.”

Oh, Henry!

Sean,

While I am not a fan of Kissinger, your lack of understanding of what was going on in the Vietnam War, I assume, is a function of your age. The NVA used Laos and Cambodia as sanctuaries to attack ARVN and American troops daily.

Hell, the Ho Chi Minh trail ran through Laos and into Northern Cambodia. Without their presence in those two countries, they would have struggled to supply their troops in South VN and have lengthened the war even further.

Lastly, there were communist forces in both countries: the Pathlet Lao and Khmer Rouge. While there was no formal declaration of "war" both countries fought internal battles against these forces, as well as the NVA, and to claim that our bombing these combatants was a "crime" ignores the fact that the whole region was at war.

We fought in Vietnam for more than a decade and yet a state of war was never declared. Killing the bad guys before they kill you isn't a crime. Fighting a war for all the wrong reasons is a crime.

Walter B.

Walter, thanks for writing in. You make some excellent points. But we can call the “Domino Theory” a failure, as Southeast Asia didn’t become a communist hotbed after the US withdrawal. So your final sentence is the one that sticks with me the most.

Just as a side note, this is what the World Bank has to say about Vietnam, whose economy is now growing faster than China’s:

Thanks to its solid foundations, the [Vietnamese] economy has proven resilient through different crises. GDP growth is projected to ease to 6.3 percent in 2023, down from 8% in 2022, due to the moderation of domestic demand and exports. Vietnam's economic growth is expected to rebound to 6.5 percent in 2024 as domestic inflation could subside from 2024 onward. This will be further supported by the accelerating recovery of its main export markets (U.S., Eurozone, and China).

Second Passport

Sean,

Can you explain how a second passport (Italian, I assume) allows one to move to Italy? How does one go about getting such a passport and why does a passport allow one to actually move to Italy? I’m naïve on this, can’t anyone just fly to Italy on a USA passport, let’s say, and buy a house? Thanks.

Do you find Italy to be a simpler place and time? Very interested because I have thought about moving to Italy, but I doubt it will ever really happen. I’ve never even been there!

Jim T.

Hi Jim,

To get a passport to any country, one must become a citizen first. There are a few ways of doing that.

• One is by right of blood (in most European and Asian countries);
• another is by birthright (the US);
• citizenship by investment is another option (Caribbean and some European countries);
• yet another is by naturalization (moving to the country and staying there for a set number of years);
• and finally, by marriage (which I only recommend if you’re really, really sure).

I got mine thanks to my paternal grandparents, who were Italian.

It takes a while, and you’ve got to organize many documents, such as your birth certificate, marriage certificate, and your ancestors’ birth, marriage, and death certificates.

Americans can buy a house in Italy, but crazily, that doesn’t guarantee a residence visa!

That’s why I recommend having a good specialist lawyer guide you through the process.

Italy is less consumer-oriented than the States, but it’s still got all the modern conveniences of the US. With better food and wine, I hasten to add!

Come visit. You’ll love it.

Wrap Up

Lots of Jims wrote in, and I thank them for it. And thanks to Walter, as well!

Have a wonderful day!