Current account deficit of the US in 2005

[Dinner]

The economistis predicting economic growth for the US will be around 2.5% this year so if the current account deficit is 6.5% then we simply must be losing capital. That's a 4% of GDP capital transfer each year to foreigners.

[DAVOUT]

Originally posted by Oerdin
That's a 4% of GDP capital transfer each year to foreigners.

That capital transfer results partly in purchase of fixed assets located in the USA, such as lands and buildings, wich cannot be physically transfered. You actually only loose the rent but you save insurance, maintenance and taxes !

[Kidlicious]

Originally posted by Oerdin
The economistis predicting economic growth for the US will be around 2.5% this year so if the current account deficit is 6.5% then we simply must be losing capital. That's a 4% of GDP capital transfer each year to foreigners.

Our National Net Worth decreased for a few years after the dot.com crash, but it's been increasing nicely since 2002. Eventually we're sure to lose capital on a usual basis though. The days are just about over for us accumulating net worth as a nation.

[TCO]

Let me go back and read it all later.

instant reactions:

i don't get upset about the trade deficit (is that what CAD is?) If US consumers decide that they value immediate gratification more than investment, who cares? That's their decision. And the decision of people to lend to them. And some component of the trade deficit is related to investment in the US and the security of the US to lend to.

The actual government deficit is a bigger issue. And the biggest issue is level of government spending itself.

I don't know what NIIP is.

(IOW, my take is the classical Wall Street Journal "true religion" beliefs. I'm not a neo-mercantilist.)

[TCO]

Originally posted by KrazyHorse


Because it's on a break on the way down. Where is it relative to where it was 5 years ago?

I think both the answer and the original question, don't quite address this issue in the right way (show a thread of poor finance thinking). It's not the directionality of the dollar, that is really the issue. Rather it is the level of valuation. The better way to talk about this is to argue about whether the market estimation of valuation is correct (and of course the market is "aware" of the information posted here already).

If you want to get into directions, rather then levels, you could look into whether the CAD numbers (and others) were lower or higher than expected. Even a very crappy company can have it's stock bounce up if we find out that it was a bit less mismanaged then we expected it to be. (IOW market prices in expected effects and moves based on unexpected ones...)

[KrazyHorse]

Originally posted by TCO
Let me go back and read it all later.

instant reactions:

i don't get upset about the trade deficit (is that what CAD is?)

CAD is trade + investment income + aid

it measures total net flux of currency out of country in transactions which do not purchase foreign equity, security or debt instruments

If US consumers decide that they value immediate gratification more than investment, who cares?

I would think that as somebody who's interested in seeing the economic climate around him not go to pot, you would. If people spend too much now then they have to spend less than otherwise later. This makes things suck even for those who haven't spent too much.

The actual government deficit is a bigger issue.

Why? Government debt is financed at very low percentage rates (until the CAD starts to really worry international markets, that is...which is another problem). Overall, CAD financed by higher rates.

I don't know what NIIP is.

Total value of equities and debt instruments in foreign countries owned by Americans minus total value of equities and debt instruments in US owned by foreigners

[KrazyHorse]

I think both the answer and the original question, don't quite address this issue in the right way (show a thread of poor finance thinking). It's not the directionality of the dollar, that is really the issue. Rather it is the level of valuation. The better way to talk about this is to argue about whether the market estimation of valuation is correct (and of course the market is "aware" of the information posted here already).

It's actually a question of future valuation. Dollar has slid over a few years while CAD continued to widen. Beyond questions of false bumps caused by big slides (people take a few months to switch suppliers due to currency changes). Unless consumer psychology changes, dollar needs to devalue by what many are seeing as another 25% to close CAD. If dollar slid that much over next 2-3 years, what would the impact on growth be? How could consumer spending continue while facing much higher prices on imported goods, especially given that a currency slide would be accompanied by tightening of foreign credit?

[TCO]

1. Well if the dollar's value slides and we can't buy as many foreign goods, then at least we get to stop listening to the harping about the CAD. I really don't have a problem with that. It seems like the natural way for the equilibrium to work itself out.

2. So do you agree with the current valuation (level)?

3. I still have no issue with people deciding that they prefer goods now, versus the return generated by saving. It really doesn't bother me. You're free to be a miser if you want. If people do it too much, then eventually they won't be able to do it any more. I've been hearing this whine since 1980. If only we would just save like the industrious Germans and Japanese. Who cares. It's the individual's choices. If they borrow too much, then the interest rates will go up eventually and they will have to reduce their habits. Next we'll hear the crying about the Japs and Germs buying up all our real estate and our companies (or put in the Chicoms). The good thing is they probably will and then the value will drop. Just like with Chrysler. Remmebr hearing the Roland crowing over that peice of mercantilism and then we still won in the end. good to be a drunk american. Bismark had it right. God loves me for two reasons.

4. More later.

[DanS]

With regard to spending versus saving, I also have no problem with people choosing to spend. However, the government should put policies in place that are neutral with regard to this choice.

[TCO]

Originally posted by KrazyHorse

I think both the answer and the original question, don't quite address this issue in the right way (show a thread of poor finance thinking). It's not the directionality of the dollar, that is really the issue. Rather it is the level of valuation. The better way to talk about this is to argue about whether the market estimation of valuation is correct (and of course the market is "aware" of the information posted here already).

It's actually a question of future valuation. Dollar has slid over a few years while CAD continued to widen. Beyond questions of false bumps caused by big slides (people take a few months to switch suppliers due to currency changes). Unless consumer psychology changes, dollar needs to devalue by what many are seeing as another 25% to close CAD. If dollar slid that much over next 2-3 years, what would the impact on growth be? How could consumer spending continue while facing much higher prices on imported goods, especially given that a currency slide would be accompanied by tightening of foreign credit?

Huh? This almost sounds Kidicious. Could you spell out your argument in more detail? What do you think determines the value of a currency? (I don't know myself btw. But it has to be rooted in supply/demand and finance concepts...in microeconomics in the end.

Oh...and ARE YOU SAYING that the dollar is 25% overvalued? Sounds like you are making a statement about current valuation while declaiming making one. Pity the people who buy bonds from overseas now. When that sudden correction occurs, they will get butt****ed!

BTW, here is a decent blog on oil and macro-weenie stuff. what is the big slide/bump/supply switch thing?

http://www.econbrowser.com/archives/2005/12/whos_afraid_of.html

Here is a better one in terms of smart writer, but not as easy/fun a read:

http://macroblog.typepad.com/macroblog/2005/10/cecchetti_on_in.html

[TCO]

Originally posted by DanS
With regard to spending versus saving, I also have no problem with people choosing to spend. However, the government should put policies in place that are neutral with regard to this choice.

Yes. But the most important thing is to have the government spend less. I'd rather have gridlock with a democrat in the white house being restrained by congress and spending less than with Bush and the GOP putting in drug plans and transport bills and the like.

[DanS]

No doubt. In full agreement on that score. Spending dwarfs the deficit in relative importance.

[TCO]

I agree with your former also. Just had to make it mine by overlaying it with something else.

[KrazyHorse]

Originally posted by TCO
1. Well if the dollar's value slides and we can't buy as many foreign goods, then at least we get to stop listening to the harping about the CAD. I really don't have a problem with that. It seems like the natural way for the equilibrium to work itself out.

I agree that it will work itself out. Of course. But I'd rather see behaviour start to change today to avoid longer pain later.

[q]

2. So do you agree with the current valuation (level)?

I think it's still slightly overvalued, and will be forced significantly under value before things get right. I personally would not buy US assets at this point, especially given what I see as a slightly overpriced equity market and the downside risk to the currency.

3. I still have no issue with people deciding that they prefer goods now, versus the return generated by saving. It really doesn't bother me. You're free to be a miser if you want. If people do it too much, then eventually they won't be able to do it any more. I've been hearing this whine since 1980. If only we would just save like the industrious Germans and Japanese

? First off, I don't think that I've going to change general consumer behaviour in the US by talking about this. I'm not whining about it; I'm worried about it. Secondly, the trade deficits being run at that point were large, but not as large as today's. Not even close. Thirdly, at that point the US had a significant net balance of investment income, which helped finance the trade deficit. Fourthly, the Germans and Japanese were almost at the same level as the US in terms of worker costs. Today the problem is with countries which aren't going to see their worker costs rise quickly enough to halt the outflow of capital in a timely manner. When your GDP per cap is 1000$ a 10% increase means **** to consumers in the US.

Next we'll hear the crying about the Japs and Germs buying up all our real estate and our companies (or put in the Chicoms). The good thing is they probably will and then the value will drop.

And then the value will go up again...and they'll still own it...

Do you really believe that the economic choices of people around you don't have an effect on your future? Do you feel like your prospects are independent of their mistakes?

[KrazyHorse]

Originally posted by TCO


Huh? This almost sounds Kidicious. Could you spell out your argument in more detail? What do you think determines the value of a currency?

Mainly investor appetite to hold debt and equity in the country of origin for the market value.

In terms of overvalue and undervalue, I'm talking about the market price relative to cost to buy an equivalent basket of goods.

That's the problem with words like "overvalued". Which, by the way, you injected into the conversation