Posted on 03/10/2006 12:33:17 PM PST by groanup
I see you have no other data. You are going off of theory. Fortunately for the conservative case...Mankiwics power point display is a set of axiomatic claims that does not support your positions...and apparent misinterpretations. Net 'capital inflows' doesn't mean what you think they mean. They are a liability. A debt. Which is why the continued U.S. import habit is representing a net reduction of U.S. savings and wealth.
Review Figure 2 in Images 19 and 20. Unfortunately the power point files were not accessible for posting here...but clearly they show that in fact the U.S. has been suffering a serious negative number in NX, net exports which drives all other issues. As Manciwcs charts confirm the conservative case...that national savings "S" is diving as a result of the increasing trade deficit (S=I+NX), with corresponding declines in both Domestic Investment and capital savings.
Conclusion: You got it precisely backwards. Net Trade Imports don't increase our capital. Our well-being. They are a capital liability. Hence They reduce it and our savings of it. GDP is also confirmed to be directly reduced by a trade deficit. Y=C+I+G+NX Translated: GDP = Consumption + Domestic Investment + Governmental Spending + Net Exports. In these equations, a negative number for NX, the net exports, lowers GDP 1 for 1.
Government exists for one reason, to defend the rights of the individual.
The "real one" as you call it, lasted a blink. The "tech" one you indicate wasn't a "real" crash, destroyed wealth across a broad spectrum.
Yes. I also have to disagree with your overly narrow statement.
Not because I am opposed to commerce. But that is a lesser function...a subset of the larger set of rights. It entails protection of our rights to life, liberty and the pursuit of happiness (the latter being where you can pigeon-hole commerce).
To pursue happiness.
Among others.
Okay then, let me just pin you down as long as you've spelled it out the way you wanted to. This so-called liability does not necessarily have to be debt - a bond purchased by a foreigner, for instance. The 'capital inflow' [I'll leave it between the '' for your edification] can be a bond, yes, but it can also be an equity or it can be plant/property/equipment. You're with me so far, right Mr. Ross?
Okay, so when an American individual or business invests in a foreign bond, a foreign equity, or foreign plant/property/equipment, it becomes a 'capital outflow' [again, for your edification I place this in between '']. The flip-side of this capital outflow amounts to a reduction in the so-called trade deficit. In other words, it decreases the absolute amount of the Net Exports number and makes it less negative. Still with me, Mr. Ross?
When the 'capital outflow' is used for Foreign Direct Investment by Americans to purchase foreign PP&E or to purchase a foreign stock or to purchase a foreign bond, this investment abroad leads to creating jobs in foreign countries - jobs that could have been created in America instead.
So, in short, Mr. Ross, you mistakenly believe that a trade deficit hurts us on one hand but then pine away because of the consequences to the very same balanced trade objectives that you advocate so strongly for. You cannot have it both ways.
Okay? Now, lets' review what I wrote to Unseen in post #512:
Say, did you know that American capital that flows out of the United States and into other countries (purchasing things like production facilities and the subsequent outsourcing of some production that used to be done domestically) actually helps to balance our trade deficit? This must make you a closet supporter of outsourcing and of the principle that Americans should be buying up foreign assets a.k.a. Foreign Direct Investment.
And here was your reply to me after chiming in (post #514):
I'm sure an outsourcer...and their import-lobby apologists... would glibly claim that.Let's see your empirical data.
And then explain how we really don't have a trade deficit.
To which, in post #515, I wrote:
Net exports are equal to net capital outflows and, conversely, net imports are equal to net capital inflows. I have stated, many times to you, in fact, the last portion of that sentence. You have never disagreed with it before and now all of a sudden when I state the first portion of the sentence, you just now call B.S.?
After all of this, the final reply from you to me is your conclusion in which you wrote:
You got it precisely backwards. Net Trade Imports don't increase our capital. Our well-being. They are a capital liability. Hence They reduce it and our savings of it. GDP is also confirmed to be directly reduced by a trade deficit. Y=C+I+G+NX Translated: GDP = Consumption + Domestic Investment + Governmental Spending + Net Exports. In these equations, a negative number for NX, the net exports, lowers GDP 1 for 1.
I'll ignore your complete lack of understanding of what happens to Y through changes to C, I, and NX...I'll only stick with one issue for now. Based on what you wrote and they way I'm letting you frame the debate, the only logical conclusion is to run trade surplus with other countries, buying up their assets and creating the same economic conditions abroad that exist in America today, right? Because, according to you, we would make the foreigners worse off then they are now. That's is a correct assessment of your sentiment, right?
If this is indeed true, you should celebrate when foreign production facilities open with American provided capital and that those things that were once made here in America are now made abroad because an American business would be getting a better rate of return on their investment. You must, therefore, be in favor of outsourcing.
And, you must also celebrate if, instead of direct investment, an American buys a foreign bond and lends money - indirectly - to a foreigner who either wants to purchase a home or who wants to start or expand his business - a business that may just compete with a domestic producer for the global consumer.
What if the American buys a piece of property and rents it to a foreign resident? How do you feel about that? Shoot, what if it is purchasing a foreign equity, making the foreign firm even more leveraged to finance their business activities? What then, Mr. Ross? Let me know if I've got any of this wrong when you respond to this post. You've spun yourself into your own web, Mr. Ross, how are you ever going to spin yourself out of it?
Oh, one more thing; must I really provide you emperical evidence now to bak up what I wrote earlier concerning Net Exports being equal to Net 'Capital Outflows'?
Seems like commerce can be 'pigeon-holed' into liberty and life as well. Unless you really believe that the ability to trade with one another serves only to provide happiness...at the exclusion of life & liberty. And listening to the protectionists around here, there's not much happiness in commerce, either, only the misery trading brings.
it inecreases the absolute amount of the Net Exports number and makes it less negative.
Mr. Ross, I thank you for helping me make my point regarding how the issuing of debt instruments by Americans results in a capital inflow. I can safely drop the '' thinggies now!
Allow me to correct your correction. A negative NX means that it (net exports is negative, i.e., in the red) is a reduction from GDP Imports...it is subtracted from the GDP. Manciwics...your source...concludes as an axiomatic matter...that trade deficits are not a 'win' for the economy. The imports are subtracted from GDP. Adversely effecting savings of capital. Etc. They are a loss.
Net 'capital inflows' doesn't mean what you think they mean. They are a liability. A debt.
Paul Ross, posting a link about the definition of a bond/debt instrument in post # 531, stumbles onto some truth, finally! The opening of the definition of a bond/debt instrument begins "A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing."
From past experience, though, I know that he's too stubborn to concede that he's contradicted himself yet again.
He's confused about the difference between foreign currency and U.S. Treasuries, so I'm not surprised he confuses debt and capital.
Allow me to correct your correction. A negative NX means that it (net exports is negative, i.e., in the red) is a reduction from GDP Imports...it is subtracted from the GDP. Manciwics...your source...concludes as an axiomatic matter...that trade deficits are not a 'win' for the economy. The imports are subtracted from GDP. Adversely effecting savings of capital. Etc. They are a loss.
Yes, and in spite of NX working against GDP (or Y), the I increases, as does the C, to the point where it offsets and, in fact, eclipses the drag that the negative NX created. That's the whole point of this study that I keep dragging out and that you keep failing to read. That's the reason why people trade with one another...to make themselves better off. They do not trade with one another to, as you believe, make themselves worse off. Yet that's the stupid argument that you keep trying to debate and I, and others, keep telling you that you're incorrect.
I know you like to forget that part. So again, essentialy you misconstrue. Bonds are debt. Thence they are a "loan". Hence, you are not netting an increase in capital savings. THAT is the definition of improvement in wellbeing.
The U.S. is already falling behind in the interest payments situation...looking more and more like a third world country.
Did you see this last month?
Feb 17, 2006 , Asian Times
The psychology of a falling dollar
By Axel Merk, Financial Times
Given a current-account deficit in excess of 6% of US gross domestic product (GDP), many fear the dollar must decline. At the World Economic Forum in Davos, Switzerland, policymakers disagreed as to the severity of the risk, its causes and cures.
In a nutshell, the United States does not export enough to the rest of the world to balance its own appetite for cheap Asian
imports. The American consumer spends too much and saves too little. As a result, dollars are leaving the US in return for goods and services. Unless those dollars are reinvested in US-denominated assets at a rate in excess of US$2 billion a day, the dollar will decline.
According to the Financial Times, the top international-affairs official at the US Treasury warned that if the United States were to instigate policies to rein in the consumer, it would plunge the country into a deep depression; fallout to other countries would also be severe. While we have explained in the past why the US has no interest in a consumer slowdown, this is the first time we have heard the US Treasury warn about the risk of a depression.
To adjust the current-account deficit without a severe adjustment in the value of the dollar, the rest of the world could also spend more and save less. While China's savings rate of 30-40% of disposable income is likely to come down at some point, we doubt that the rest of the world can or even wants to adopt US spending habits; Americans now have a negative savings rate. Not only is much of the world economy dependent on the US economy, the US economy also dwarfs many of the emerging economies where a pickup in consumption could be expected.
In many of our analyses we traditionally focus on the fundamental pressures on the dollar, including the current-account deficit described above. While fundamentals may drive the long-term view, short-term moves tend to be influenced by psychological factors and perceptions on supply and demand. From time to time, we see an argument why the current account deficit does not matter, but most of these "fundamental" arguments are about as good as explanations in 1999 of why the economy had entered a new era.
One reason so many do not pay attention to fundamentals is that the daily flow of information makes it difficult to see the big picture; instead, analysts revert to trend analysis. Why bother about the dollar when it has "always" been "cyclical"? The US consumer has "always" spent too much, why worry now? Why bother about the dollar if your expenses are also in dollars? And why bother about it given that it is in the world's interest that the US consumes what the world produces?
First, and this may surprise many "dollar bears", American consumers are, generally speaking, far more rational than they are given credit for. Increased debt burdens have come with gradually lower interest rates since the early 1980s. American consumers react to monetary and fiscal policies, as well as cheap Asian imports. There are side-effects that policymakers may not have intended. For example, while in the 1950s fewer Americans owned their homes, they truly owned them; now, banks are the true "owners".
Most important, while we agree that it is in the world's interest to keep the dollar strong, it may be fatal for the government to base its policies on that presumption. The US dollar has enjoyed the confidence of the world as a reserve currency for many decades because of relatively prudent management.
One cannot turn the world upside down and blackmail it into producing cheap goods because it is in its interest to build infrastructure and create employment. While we expect policymakers in Asia to fight tooth and nail before letting their currencies appreciate significantly, history has shown that the markets are ultimately more powerful than policymakers. This does not mean we should purchase the currencies of countries backed by unpredictable leadership. However, it does mean that the markets may punish the holders of US dollars.
We believe that the currencies of countries backed by what we call sound monetary policy will be the beneficiary of any fallout. We refer to countries that are less likely to intervene in the currency markets and are less likely to engage in competitive devaluation.
The currencies of many Asian countries have speculative potential, but it is one thing to try to shield yourself from a decline in the dollar by diversifying to a basket of hard currencies; it is another to speculate on the unpredictable behavior of, for example, the central bank in Japan. Japan has made it clear over and over again that it is in its interest to keep the yen weak to boost exports. The Japanese market is swimming in liquidity; the Bank of Japan is yielding to political pressure and does not mop up this added liquidity. Instead, it has agreed to allow the Consumer Price Index to be redefined so that it can stand by its promise to keep rates low while inflation is low. In the US, we argue whether government statistics have a bias to show too little inflation; in Japan, there is no debate - we know the statistics cannot be trusted.
Some believe higher interest rates may save the dollar as higher rates attract more investments. This analysis ignores the fact that as of the end of last year, the US pays more in interest to overseas creditors than it receives from overseas investment. This phenomenon is more typically associated with Third World countries; as interest rates rise, obligations to foreigners increase. Foreigners mostly hold short-term denominated debt securities, those most affected by interest-rate increases. Since the US Treasury suspended the sale of 30-year bonds in October 2001, government debt has become much more interest-rate-sensitive as the duration of outstanding debt declined. Just as US consumers took out adjustable rate mortgages (ARMs) to finance their spending, so in effect did the federal government.
More important than whether the United States has reached the peak in interest rates is the perception that there are not many more rate hikes, if any, in the pipeline. At the same time, there is a perception that the European Central Bank, for example, is going to raise rates further. It does not really matter that the ECB may be reluctant to raise rates and the new US Federal Reserve chairman Ben Bernanke may end up raising rates more than some expect. In our assessment, in the coming months, the perception is going to influence the dollar more than the absolute level of interest rates.
COMMENT: I personally don't subscribe to the weak dollar 'solution' that is advocated here. I think we need to fix things on a bilateral basis rather than have these parasites debase our savings, net income and net wealth.
Sorry. I don't believe a word from Daniel Griswold.
No article posting or link dumps, just true or false to each question.
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