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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Elroy Jetson who wrote (28341)3/18/2005 7:22:02 PM
From: rich evansRead Replies (1) of 306849
 
Elroy,
According to the Federal Reserve, the Current Account Deficit also includes the earnings of all subsidiaries of foreign companies in the US. So every time you buy a Chrysler, it adds to the deficit.
There is an article by Poole of the St. Louis Feds on all this on their website. It is also stated that the current account deficit must equal the capital account surplus. In other words, one way or another, all the deficit money must come back here either as investments or treasury bonds purchases.
Of course there are many Us companies with subsidiary earnings abroad which add to the US side. But companies that are basically US like Flextronics (singapore) or Tyco ( Bermuda) all count against us in the current account deficit calculation.
There must also be quite a float of dollars used in commerce in the world using up part of the dollars out there. Oil of course is well known and priced in dollars. But if Tyco connectors are sold to Flex in China often the contract is in dollars.
All in all quite confusing in my opinion and hard to make generalizations about. Greenspan has recognized this and said : "that Globalization as altered the specific calibrations of these financial criteria and the economic frameworks of nations in ways that are difficult to fully comprehend."
Conclusion--- it is all a conundrum.
Rich
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