Since the subject was discussed here some time ago (and I promised to reference the US net external debt, better late than never...), I thought I'd mention that there have been a couple good articles on the dollar and the current account deficit recently in the Financial Times.
One was by Peter Bernstein and appeared a few days ago in the Financial Times, but it wasn't free so I didn't post a link. But it just appeared on John Mauldin's web site for free: http://www.investorsinsight.com/article.asp?id=jmotb112204 (There's also a longer article there by Bernstein about corporate accounting which makes an excellent and probably true point, but the data analysis and presentation isn't so hot) There's a superb article in today's (Nov 24) Financial Times by Martin Wolf called "The world must adjust to the dollar's inevitable fall". It's not free, though. (You can sign up with a credit card and then cancel within 2 weeks and not be charged) http://news.ft.com/cms/s/8a0438c8-3d85-11d9-abe0-00000e2511c8.html Here are some excerpts: "The US current account deficit is close to 6 per cent of GDP, while net external liabilities must now be close to 30 per cent of GDP. [If real GDP grows at 3 percent and the current account deficit remains at 6 percent of GDP, then net external liabilities will grow at about 3% of GDP per year, i.e, 30% in 2004, 33% in 2005, 36% in 2006, etc.] MYTH (1) the deficit is driven by capital inflows attracted by high US real returns .... [actually it is driven by] exchange-rate management by foreign governments and the search for a safe haven by foreign private investors Chart shows US GROSS external liabilities of $10.5e12, with the following breakdown: 23.2% Direct investment 17.9% US bank liabilities 17.6% Corporate bonds 14.6% Corporate stocks 14.0% Foreign official assets 5.2% US Treasuries 4.4% US non-banking liabilities 3.0% US currency Chart shows US NET external liabilities of -$2.65e12 with breakdown: + $729B direct investment and equities - $318B US currency -$1206B official assets -$1900B bonds, including private holdings of US Treasuries [this means the US owns more foreign companies and foreign stock than foreigners own in the US; however, the US owes much more debt, in the form of notes and bonds, than foreigners owe the US -- the grand total being that the US is a net debtor nation] .... MYTH (2) the deficit is caused by high economic growth in the US .... [actually] What generates rising current account deficits is faster growth of demand than of supply....This is easy to see from China's experience, since the emerging Asian giant has persistently run current account surpluses. [Chart shows US real domestic demand growing faster than real GDP every year from 1996 to 2004 inclusive] .... What then is the bottom line? It is, first, that the current account deficit's trajectory cannot be explained away by positive features of the US economy. It is, second, that a big real depreciation of the dollar is inescapable if the trend is to be changed." Finally, for a really in-depth article, have a look at "The US as a Net Debtor: Sustainability of the US External Imbalances" by Nouriel Roubini and Brad Setser: http://www.stern.nyu.edu/globalmacro/Roubini-Setser-US-External-Imbalances.pdf http://tinyurl.com/64s79 Excerpt: "No matter what their cause, the large ongoing deficits created when spending exceeds income have to be financed by borrowing from abroad (or by foreign direct investment or net foreign purchases of U.S. stocks). The broadest measure of the amount the United States owes the rest of the world -- the net international investment position or NIIP -- has gone from negative $360 billion in 1997 to negative $2.65 trillion in 2003. At the end of 2004, we estimate the net international position will be negative $3.3 trillion. Relative to GDP, net debt rose from 5% of GDP in 1997 to 24% of GDP at the end of 2003. It is likely to reach 28% of GDP by the end of 2004 and then keep on rising. Trends are no more encouraging when U.S. external debt is assessed in relation to U.S. export revenues. Exports as a share of GDP dipped a bit during the Asian crisis but then recovered and stood at 11% of GDP in 2001. But exports then slipped dramatically between 2001 and 2003, falling to a low of 9.5% of GDP in 2003 before starting to recover in 2004. Rising external debt and falling exports is never a good combination. At an estimated 280% of exports at the end of 2004, the U.S. debt to export ratio is in shooting range of troubled Latin economies like Brazil and Argentina." _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
