----- Original Message ----- From: "Erik Reuter" <[EMAIL PROTECTED]> To: "Killer Bs Discussion" <[EMAIL PROTECTED]> Sent: Wednesday, August 11, 2004 5:17 PM Subject: Re: free trade and the balance of trade problem
> On Wed, Aug 11, 2004 at 12:59:54PM -0500, Dan Minette wrote: > > > Playing with numbers I took the accumulated balance of trade imbalance > > in goods and services since 1960 and divided it by the GDP. This is > > akin to dividing the total household debt by the household income. > > When we have a balance of trade deficit, money flows out to make up > > the differences between goods sold and bought. > > I think it is more accurate to say that certificates (bonds, stock > certificates, IOU's, etc) flow out, not money. The trade deficit is > financed by foreign investment in the US -- most recently by countries > like Japan and China buying US bonds, and before that by foreigners > buying US equities. I know that happens; I'm just looking at seperating the parts. There are a lot of dollars floating around the world; dollars is the currency of convenience. A worthwhile place to invest those dollars is in the US national debt, or stock, as you said. But, that investment isn't permanant; stocks and bonds are bought and sold. > > At what point does this become disturbing? Is it when its 100% of > > GDP, 200%? never? If never, why? > > Basically, we are selling our assets for current consumption. That's a way I was thinking about it too. We are selling and mortagaging our assets. It seems, at some point, that the surplus of dollars might trigger a panic. At some point, US bonds do not look like a good investment because intrest rates are going up and stocks are not doing well. When folks want to get out of dollars, they find there is much less demand for dollars all of a sudden. Markets can overreact, as we all know. >Foreigners own a certain percentage of US assets at any given time, and that > perecentage has been going up for quite a while. I vaguely remember > Warren Buffett writing an interesting comment about this some time ago > (if you are interested, I can try to dig it up). I'd very much appreciate that. One thing I keep recalling from history are those countries that obtain a massive foreign debt often spend a lot of money paying it off. The US is nowhere near that point, but it could definately have an effect; and I'm wondering how it would manifest. > So, a better way to ask your question might be, at what percentage > of foreign ownership of US assets does a problem arise? At 100%, > then we would all be working for foreigners to earn our room and > board. Would that be a problem? Many people would consider it one. So, > at what percentage less than 100% do we cross over from acceptable to > unacceptable? I wonder what the net assets of the US are. I've looked for that number, but it is not as easy a number to obtain as GDP or trade imbalance. Maybe I should look again. Dan M. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
