Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: greenspirit who wrote (272505)	7/10/2002 9:28:54 AM
From: Baldur Fjvlnisson	Respond to of 769670

Holy Koresh!: Would You Keep Investing In An Enterprise That Was Just Throwing Parties With Your Funds? July 09, 2002 ntrs.com In the 1990s, the US was the recipient of a huge amount of the rest of the world's savings. As shown in the chart below, the US current account, a proxy for capital inflows, went from a surplus of almost 1% of GDP in early 1991 to a deficit of over 4% of GDP at the end of 2000. And what were we doing with the savings of the rest of the world? The other line in the chart shows that we were spending a good portion of the resources on loan to us on nonresidential fixed investment -- i.e., computers, servers, routers, drill presses, office buildings, and warehouses. Presumably, by investing the savings of the rest of the world, we would become more productive. If so, we would then be able to pay the interest and dividends owed to foreign investors and have enough output left over to still provide us with a rising standard of living. This is why global investors were so willing to place funds with us - because we appeared to be employing those funds in way which increased the probability that they could be paid back without undue hardship on Americans. Global investors didn't care about the hardship on Americans, per se. Rather they felt that if debt and equity servicing required hardship on Americans, we would try to repay global investors with "cheaper" US dollars. The US current account as a percent of GDP peaked out at 4.4% in the fourth quarter of 2000. But starting in the fourth quarter of 2001, the current account deficit relative to GDP started moving up again. It had risen back to 4.3% by the first quarter of this year. So, global investors have stepped up again their placement of funds with us. But what are we using the savings of others for now? A form of partying, I would argue. Now, we are using the resources of the rest of the world to erect houses here, buy Lincoln Navigators, and build cruise missiles. Nonresidential fixed investment as a percent of GDP peaked out at 13.2% back in the second quarter of 2000. By the first quarter of this year, this percentage had slipped to 11.1%. So, we are borrowing more resources from the rest of the world, but not employing these resources in ways that are likely to boost our productivity in the coming years. Do you think that global investors will want to keep throwing good money after bad? Judging by our weak stock market and weak dollar, the answer is "no."....[charts, more]