1. I don´t believe that politics has such an huge influence and can be blamed for such development. The people have to decide on their own how to spent their money and what is reasonable not some politicians.
2. The american economy showed and shows solid growth and is healthy. The current account deficit or trade deficit is no problem because there is no sign that foreigners (asians) stop funding that.
3. I am interested in that because of my profession but also because i find it a very interesting situation in the US and a very unique one.
"You say "not their net wealth will pay for consumption or mortgages it is their income". This is a mistake" The increase in total assets is $14 trillion and the increase in mortgages is $3 trillion. Americans are making more money than they spend and they are getting rich."
I make research to develop credit rating systems not especially for private households so i have a different view on this but these numbers ( saving rate or net wealth) are far to general to talk about individual situation and that´s what it is in the end.
There is a difference between income and wealth from asset values and Americans are not making more money than they spend but they are clearly richer according to the numbers we discussed.
So one can say the gains of my assets represents income for me and i can spend it because i am richer now than i was one year ago. But these gains only equals income when they are realized that´s the reason why no company on that planet is allowed to publish unrealized gains and companies sometimes have these huge hidden reserves especially here in germany (but this is changing).
If this person does not want to sell the asset but wants consumption now (negative saving rate) he has to get a loan or mortgages and pays rates on that payed by his "real income".
So we have two main differences he has to pay rates from his income ( let us forget about new exotic forms of loans in the US like reversed mortgages etc that are unknown here) because of his debt and he has the risk of devaluation of his asset. The debt burden of households will play a role here and this number was more or less stable over the last years on a record level but no dramatic increases. That would only change with increasing rates but i doubt the FED wants to sink the american economy.
different economic decisions are often influenced or better can be explained with the help of the risk theory. Different people different predictions of the future and different willingness to take a risk and many amercians are not very risk advers in my opinion.
In the end a interesting topic but a individual problem only if many people are not reasonable there would be a problem.
taxes are also a very interesting topic looking at the situation in many developed countries and their debt because the deficit of today are the taxes for my children and grandchildren. It is good to reduce taxes but in the same way the government has to reduce the spending. They can not present the people the same social security infrastructure or national defence with lower taxes or better while creating huge deficits that someone will have to pay for in the future.
If someone follows Laffer lower taxes are possible and this is a good thing but please without these huge budget deficits.
Excellent post with many strong points!
I don´t believe that politics has such an huge influence... ...The american economy showed and shows solid growth and is healthy
We agree that Stephen Roach was wrong when he said the opposite in the article that started this thread.
We also agree that measuring economic well-being is hard work. You should get paid a lot of money to "develop credit rating systems". Like you said: "the gains of my assets represents income" but "no company on that planet is allowed to publish unrealized gains and companies sometimes have these huge hidden reserves". Besides the problem with hidden reserves there is also the problem of inflated balance sheets where people say they have a house worth a million dollars, but they complain that they can't sell it for what it's worth (home sales dipped 2.8% last month to an annual rate of 6.56 million). The reality is that if nobody wants pay a million dollars for the house, then the house is not worth a million dollars.
The article confused the trade deficit with the budget deficit as if they were the same --they aren't . The article said they're both bad --they aren't. The trade deficit is a capital surplus. In 1960 the US had a trade surplus and a capital deficit so bad that there was high unemployment and gold reserves were lost. The budget deficit is how we manage our cash flow inside the country. Saying that "the deficit of today are the taxes for my children" is not true, it's only half true. The other half if the truth is that wealth of today is an inheritance for the children; so the best way to care for the future generations is to not think about the deficit or the wealth separately, but think about the total. Our total is good and it's getting better.
