Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: CalculatedRisk who wrote (25136)	3/9/2005 2:46:38 AM
From: Mark Adams	of 116555

Thanks for posting. Been awhile since I read something using the word intertemporal. Guess I've been slumming a bit too long. <g> Why shouldn’t we expect the elderly Japanese to use some of those assets to support consumption in excess of the goods and services that can be produced by the shrinking Japanese labor force? While this might be the default expectation given our cultural bias, the Japanese may choose differently. Perhaps by crediting them with a longer 'horizon' (& willingness to take longer views into account in their decision making processes), I'm engaging in a bit of cultural stereotyping. It is clear that Japan and Europe face imminent demographic challenges. Thus, it is natural that they accumulate claims against a country that has financial markets and economic growth prospects of sufficient magnitude to facilitate the required adjustment process. A case can be made that the current account surpluses of these countries as well as the current account deficits of the United States will be reversed in the future as these aging economies draw on their claims against the United States. I do not know whether such a scenario will be played out; however, I do know that I look forward to additional research and discussion on this topic from a demographic perspective. It's nice to see the idea getting some print. Though Finally, although a current account deficit necessarily involves a capital account surplus, and vice versa, it is not correct to view the capital account as financing the current account other than in an accounting sense. We could equally well say that the current account deficit finances the capital account surplus. The current and capital accounts are simultaneously determined; causation does not flow in any simple way from one account to the other. will require me to do some homework. I thought I'd extracted a hint that "it is equally possible capital account inflows are driving the current account deficit" from another fed paper. Perhaps this is a misinterpretation/misreading on my part.

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