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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: smolejv@gmx.net who wrote (2608)	3/28/2001 3:28:02 PM
From: MeDroogies	Read Replies (1) \| Respond to of 74559

Been travelling around the country and now going overseas, so I haven't had time to post lately....let alone read the boards. I don't have a problem with the savings rate. It's not a good thing that it's so low, but not necessarily a doom-laden indicator. Lots of countries were heavy savers and never achieved the potential that a high savings rate supposedly is an indicator of. They don't consume enough. What's the point of saving if you don't consume? The Soviet Union had an incredibly high net savings rate, but it translated into garbage because one of the reasons it was so high was based on the fact that there was nothing to consume. An acceptable savings rate for managing an economy is in the -10 to 10% range. You'd prefer to have it in positive territory, for obvious reasons, but a negative savings rate doesn't necessarily carry the pall of doom with it. The same is true of the current account. Has anyone ever tried the balance the flow of trade and the flow of capital and finance? For some reason, the numbers don't add up on a global basis. In theory, it should all net to zero. But it doesn't. There are a myriad of reasons for it, but nobody has pinned it down, in any meaningful way. That said, the only thing that is important about trade is whether the goods or services are efficiently traded. In other words, it's got to be an example of comparative advantage. Imbalances may occur, but they aren't necessarily based on the balance of trade, but rather the efficiency of the trades being made. If cars are better and cheaper if made in Taiwan, then it makes sense to import. If it makes more sense to make them in Tennessee, then there will be an imbalance and trade flows will have to adjust until the imbalance is worked out. But the current account isn't necessarily a proxy for explaining when things are out of balance. If a positive current account were a good thing, then Japan should still be in the midst of its halcyon days. Instead, their positive balance proved to be a millstone as they have not managed it well. A negative one is a problem, but a greater problem for small economies, less of one for large economies. Things will come back in to balance when the efficiencies need to be realigned, not necessarily just because current accounts look imbalanced. Unfortunately, there is no sure way to determine at what point those efficiencies will realign. We can use a number of proxies, but none is sure thing.