Bush's deficits and the coming crunch.

[DanS]

It's not a **** sandwich. It's good for you.

The proportion of the economy that needs to be devoted toward the manufacture of useless **** is going down. This is a positive phenomenon, despite the fact that useless **** manufacturers are having to find new jobs and we have to finance the gap in useless **** trading as the relative importance of useless **** declines.

[DanS]

Originally posted by Colon
As it stands now, the corporate sector is a net provider of capital, while both the gov't and household sectors are net borrowers. I really don't see how any transition from would cause the corporate sector's traditional deficit to flip to a surplus. If anything a costly transition would cause business to require more capital, not less. No?

Not necessarily. New manufacturing plants require large amounts of capital. The services industries not so much.

[Colonâ„¢]

You guys must be having an entire industry dedicated to cooking up new economy theories like that one. (Remember they once told us that international interest diveregences had become irrelevant to exchange rates?)

It's really simple, US' current account deficit is the result of consumption in excess of savings. You are borrowing to consume.

[DanS]

I agree. But you're assigning a negative bias to that.

[DanS]

Listen, I'm just following the argument. From the perspective of the argument, we should be most concerned if the trade in services became a large deficit. AFAIK, we're still in strong surplus on services -- the future of the economy.

[Colonâ„¢]

Like what? A given dollar of consumption rather investment means there's no return to that dollar in the future. Manufacturing vs services got nothing to do with that.

[Kuciwalker]

A certain % of that dollar towards consumption goes to a corporation as profits and is then reinvested.

[DanS]

Originally posted by Colon
You guys must be having an entire industry dedicated to cooking up new economy theories like that one.

Let's say rather that our economy is well diversified.

[DanS]

Colon & KH: 20 years from now, what proportion of the economy do you figure manufacturing to be around the first world and in the US? In the US, the figure is now only a little north of 10%.

Edit: Hmmm... The decline is rather less rapid than I thought...

[KrazyHorse]

GDP compositions

Canada
agriculture: 2.3%
industry: 26.4%
services: 71.3%

USA
agriculture: 0.9%
industry: 19.7%
services: 79.4% (2004 est.)

Wow. Really huge difference there. Enough so that it makes sense that the change in NIIP for the US is -25% in the last decade and +35% for Canada in the last decade...

[Colonâ„¢]

Originally posted by DanS
Colon & KH: 20 years from now, what proportion of the economy do you figure manufacturing to be around the first world and in the US? In the US, the figure is now only a little north of 10%.

Edit: Hmmm... The decline is rather less rapid than I thought...

I don't know, does it matter that much? Manufacturing doesn't equal low-tech, low-added value activities or vice versa. Prostitution is a services sector, for instance.

[Barnabas]

Originally posted by DanS
I agree. But you're assigning a negative bias to that.

could you explain me how that could be positive?

[Vanguard]

I note that, according to the Bureau of Economic Analysis, the US economy is growing a 7.2% annualized nominal rate.

That nominal rate will accomodate a rather large deficit.

What do you mean by "accomodate"?

If you mean it makes our deficit sustainable, then clearly our debt (as a percentage of GDP) will be lower next year than it is this year.

But that is, most emphatically, not the prediction of the CBO or any other source I can think of.

The US has had high nominal growth rates for the past twenty years. But debt as percentage of GDP has increased considerably over that period.

The reason is fairly clear. We only get the high rates of growth because of the deficit spending. But the amount of growth we get is lower than the price we pay in interest. No big surprise, of course.

[DanS]

Our debt as a percentage of GDP may be lower next year than it is this year. It all depends on how much the congress decides to spend this year and how the economy does.

But that is, most emphatically, not the prediction of the CBO or any other source I can think of.

The CBO, like other government sources, is constrained in what it can predict. They follow rules not necessarily intended to result in the most accurate prediction. It is not smart to trust these sources. That's what burned Oerdin in our bet.

But debt as percentage of GDP has increased considerably over that period.

It peaked in 1996.

[Vanguard]

In 1985 debt as a percentage of GDP was a little more than 50%. At the end of this year, it will probably be pushing 70%. That is a "considerable" increase by any standard and a huge increase given the fact that we are the world's largest economy by a factor of two.