Current account deficit of the US in 2005

[Zkribbler]

Re: Current account deficit of the US in 2005

Originally posted by KrazyHorse
6.4% of GDP

Wow.

I saw a bluedog Congressman from Arkansas talking about the size of the deficient. There are two highways, which began to be built in his district over 10 years ago. Either one will allow new jobs, etc. to be created in the district. Neither is finished because of lack of funding. Either could be finished if only 3 days of payment on the interest on the national debt could be diverted to them.

He referred to the interest payments on the national debt as the "Debt Tax."

[KrazyHorse]

I'm not talking about the national debt, though that is certainly a part of this.

[Whoha]

An important thing to remember about our service surplus is that it is shrinking,though, for 2005 atleast there was a minor pop to regain a portion of ground lost in 2004.

[Dinner]

I really don't see a way to decrease the trade deficit without protectionism. The fundimental problem is the US grows faster then most of the rest of the world so its economy consumes more. Much of out trade deficit is in oil and imported natural gas is set to majorly spike imports so more as soon as the terminals are completed so it seems pushing energy efficiency in new contruction, raising the CAFE standard, forcing every service station to sell ethanol blended gasoline (like E85), and majorly pushing mass transit in urban areas along with high speed rail to link cities which are moderate distances apart. That would slash energy imports and improve efficency though it would require money however if France and Japan can do it then so can we.

Next we push nuclear power over oil and gas powered electricity since both of those have to be imported and are horrible for the environement. Nuclear is safe and clean and only the extremists would pretend other wise. Next comes a revision in trade laws. We want to encourage development in the third world but we also want to ecourage them to change policies more to our liking. First to improve trade we sign free trade agreements with all the 1st world countries, next we sign low tariff (just a few percentage points) agreements with those countries which agree to maintain health, worker safety, sound enviromental practices, promote unions, etc... and for everyone else who doesn't want to follow these rules we slap them with a 1000% tarrif. So long Chinese and Indian goods until you clean up your act.

This would reward good behavior and punish bad behavior while still keeping the vast majority of the world's markets open. Those rogue states which disallow unions, don't enforce worker protections, child labor laws, environmental laws or anything else the 1st world collectively dictates don't get to trade. They'd have to reform to get the carrot and not the current policy of giving them free access to their carrots and then hoping they feel like reforming at some later date.

[Dinner]

I think that would slash most of the trade deficit over night and though it would cause inflation there are enough Latin American, Eastern European, and even Asian countries which are willing to follow fair trade laws that with in a few years new factories will be built there to replace the now closed factories in China and India. (I include India since child labor abuse remains absolutely rampant by all accounts as does unsafe working conditions and lack of worker protections.)

The deficit would shrink over night, countries would now have a huge reason to provide modern protections, trade between member states would likely increase rapidly, and trade with rogue states would virtually stop.

[KrazyHorse]

Originally posted by Oerdin
I really don't see a way to decrease the trade deficit without protectionism. The fundimental problem is the US grows faster then most of the rest of the world so its economy consumes more

The fundamental problem is that the US economy is not growing fast enough to meet growth in US demand. One might argue (as, in fact I do) that much of the US growth is fuelled by this excess consumption. Americans buy too many iPods, meaning that there are jobs created in the service sector, but not enough to pay for the additional expenditure. The US is fuelling current consumer demand and current economic growth through easy credit and the sale of assets. That's not a process that can continue.

[atomant]

Just do what that do in TPAC's (tin pot african countries).... print more money

[KrazyHorse]

Interesting. Though Canada enjoys a sizable current account surplus with the US, US direct investment in Canada outweighs Canadian direct investment in the US. Which means that when paid in US dollars we use those dollars to preferentially invest in overseas assets. The overseas sellers of these assets then must buy US assets to balance financial flows.

So as a country, Canada is already betting against the US...

[Velociryx]

The interesting thing about this discussion is that it attempts to seamlessly blend macro-econ figures (CAD)with micro ideas, ie

"Americans buy too many iPods" as a case-in-point of CAD.

And, while I might agree (not owning one myself), I can tell you with absolute certainty that, the vast majority of American consumers being right savvy about the tradeoffs they make, will simply discontinue the purchase of iPods when it is in their interest to do so (that's the beauty of consumerism....very little of the crap we're buying is truly essential to our happiness or well-being, and the moment it starts being too costly (either in terms of lost opportunities, or interest paid, or price, or whatever), the purchases simply won't be made at the inidividual level, and the problem goes away (or begins to).

We can look at the Macro number (CAD) and pretend all day long that the foriegn economies with which we are engaged are monolithic, thinking entities in their own right, in which case, such discussions would have dire meaning indeed, or we can acknowledge that the macro-numbers are the conglomaration of VAST numbers of individual economic decisions (the greater bulk of which are not governed by any central planning body, nor directed at all in any meaningful way), in which case, discussions about the long-term consequences of a prolonged deficit of this type are largely meaningless, as there will be no "point of singularity" at which things suddenly correct themselves, but rather, a whole series of minor corrections leading to anything BUT the "hard landing" predicted by trying to mesh the macro with the micro.

But I'll be the first to admit that it's good entertainment.



-=Vel=-
gonna go rent "Rollover" and watch it, for old time's sake!

EDIT: And I wouldn't bet the farm against the US economy....but of course, this is merely a sugesstion...

[KrazyHorse]

Originally posted by Velociryx
The interesting thing about this discussion is that it attempts to seamlessly blend macro-econ figures (CAD)with micro ideas, ie

"Americans buy too many iPods" as a case-in-point of CAD.

And, while I might agree (not owning one myself), I can tell you with absolute certainty that, the vast majority of American consumers being right savvy about the tradeoffs they make, will simply discontinue the purchase of iPods when it is in their interest to do so

You are absolutely wrong. An society of intelligent consumers wouldn't be running negative savings rates (the micro reason for the macro problem). There is far too little value placed in the US on immediate satisfaction, and not enough on future well-being.

(that's the beauty of consumerism....very little of the crap we're buying is truly essential to our happiness or well-being, and the moment it starts being too costly (either in terms of lost opportunities, or interest paid, or price, or whatever), the purchases simply won't be made at the inidividual level, and the problem goes away (or begins to)

What a load of crap. Credit card debt and bankruptcies are skyrocketing...yet we can always trust people to do the right thing?

.We can look at the Macro number (CAD) and pretend all day long that the foriegn economies with which we are engaged are monolithic, thinking entities in their own right, in which case, such discussions would have dire meaning indeed, or we can acknowledge that the macro-numbers are the conglomaration of VAST numbers of individual economic decisions (the greater bulk of which are not governed by any central planning body, nor directed at all in any meaningful way)

Duh. What's your point?

in which case, discussions about the long-term consequences of a prolonged deficit of this type are largely meaningless, as there will be no "point of singularity" at which things suddenly correct themselves

Again, positively wrong. US consumers consume in US dollars. And the local nature of much of today's economy provides a very real reason for Americans to be worried about how well other Americans are doing.

but rather, a whole series of minor corrections leading to anything BUT the "hard landing" predicted by trying to mesh the macro with the micro.

The micro examples I provided are either case studies to demonstrate definitions, or are hyperbole. They're a way to explain macro concepts in concrete terms.

But I'll be the first to admit that it's good entertainment.

What's really good entertainment is watching somebody like you weasel their way out of a discussion. According to your logic, hard landings never happen because the always-smooth economic curves prevent them

Even funnier, you do nothing to explain why a "soft landing" means anything other than spreading the pain out over a greater number of years. How do you think that the US can close the current account gap without shaving points off future growth? How can a consumer economy like the US buy less without hurting itself? How can it produce drastically more at competitive prices? Can this be done in the service sector? Can it be done in the manufacturing sector, where even now many US industries remain largely uncompetitive?

EDIT: And I wouldn't bet the farm against the US economy....but of course, this is merely a sugesstion...

Your incurable optimism is endearing, but rather myopic.

[Velociryx]

On my way to work, but as ever, I'm enjoying the read!

And I observe how quickly you get catty and defensive when someone calls you on your economic analysis. Makes one wonder why that might be?

As to the negative savings rate pointing to the ineptitude of US consumers....you mean, those same US consumers who were instrumental in building the largest, most robust economy in the world? Are those the ones you're talking about? And you honestly believe that, rather than keep a roof over their head, they'll go right ahead and buy another iPod or big screen tv?

You need to stop living in text books, friend.

The next point you refer to as "crap" also deals with consumerism and spending. You point to bankruptcies and such as "proof" that "those people" can't be trusted, and again, you look at the actions of a clear minority (representing a scant portion of the total spending power of the country) and extrapolate the results onto the scores of millions who are managing their money just fine.

It's no wonder that your "analysis" falls flat.

Further, you can't "use hyperboles" in one breath as a means of explaining why you think CAD is what it is, and then back away from it when it no longer suits your purpose, or when someone points out the painfully obvious flaw in that line of thinking.

And no....nowhere in my post above to I make the claim that hard landings never happen, but THIS issue is all about consumers spending more than they're earning.

There's a threshold of comfort out there, and it'll be reached when it's reached, not by some monolithic state machine who throws a switch, but by individiual consumers who decide they've had enough (at which time, they'll stop).

That's the beginning and the end of it.

On the flip side, there's the possibility that some foriegn companies may decide that they don't want any more dollars, and THEY will stop (but then, they've got to find another country with sufficient disposable income to drop their wares onto, else get stuck holding them....which is problematic).

So the long and the short of it is that you're looking at one number....a macro number, blaming the bulk of it via consumer spending (citing an individual example), and then going on ad nauseum about the coming "Times of Darkness."

Essentially, my reply (and the only thing I can think of that's really relevant to the "discussion" is:

Don't hold your breath.



-=Vel=-

[DanS]

bankruptcies are skyrocketing

Are they? Could you cite me to those numbers? Thanks.

How do you think that the US can close the current account gap without shaving points off future growth?

If there is a short-term shock, it might be tough. If it unfolds in the long term, we should do just fine.

[Lawrence of Arabia]

Anyone have capital account numbers?

[DAVOUT]

Originally posted by Oerdin
I really don't see a way to decrease the trade deficit without protectionism.

I am not sure that you are right : a tarif of 100% on imports would not change significantly the appetite of consumers for chinese goods; and the energy policy that you suggest does not deserve to be qualified of protectionist.

But it would be ironic that the country which sold the mundialization to the world would become protectionist!

There is a possibility that the increase of the interest rates initiates the end of the housing bulb and consequently a reduction of the credit; this would likely result in a new start of savings (and a reduction of consumption of course); and the association of those elements would decrease naturally the CAD problem.

[Lawrence of Arabia]

I really don't see a way to decrease the trade deficit without protectionism.

actually, that wont work. in a small open economy, it would simply raise the real exchange rate and leave net exports unchanged.

althought the US can be considered a large open economy relatively, it can also be see a 'small' when compared to the entire world, which is why I think we can approximately take some conclusions from this model.

besides, the main differences between them is that r* is fixed in one and not fixed in the other. i dont think we can say that the US is the country who determines r* across the world (although, it does have an impact)