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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Wade who wrote (1886)	11/6/2003 2:29:04 PM
From: Mark Adams	Read Replies (2) \| Respond to of 110194

only a nameless little citizen without economy 101 education You read, think, and ask questions. It may be your lack of formal education on the topic works in your favor. I had econ 20X; found it interesting because I had a dynamic teacher, but I don't know how much of it sank in. It was one of those summer break pack a whole year into 12 week affairs. He used the disclaimer words I think that is standard practice for many organizations- people must distinguish between what they think and the position of the group they participate in. The possible error of this view is obvious: If the current account deficit is bad, so also is the capital and financial account surplus This mirrors a statement I made recently, that 'if there is too much debt in the world, then there must also be too many assets' as all debt appears on someone's balance sheet as an asset. On inspection, the statement leads one to suggest that the problem isn't the amount of debt, it is who holds it, as debtor and creditor. This is a tricky problem in itself. It's something I spend a few minutes a day trying to locate and sort out info about. The National Account balances are done up for most nations in the world, which show how much they have invested abroad and how much people abroad have invested in them. I haven't yet developed a clear picture of this info, but thus far what I've seen reinforces a general sense that 1 trillion dollars of American debt held by foreigners is taken out a context given America's networth and production. Warren B suggests that we may be impoverishing future generations by selling American assets to non American entities, and offers a 'policy' approach to address this 'problem'. Unfortunately, there are all sorts of assumptions in that preceeding run-on. You have the assumption that 'debt is bad' when you really have to determine if the debt is financing investment or consumption. Telling the two apart turns out to be difficult. An example; If I buy a Ho Ho and eat it, that's consumption. But the Ho Ho is stored as fat, which is later burned to weed the garden. So was the Ho Ho really consumption or investment? We assume debt Americans are creating is being used primarily for consumption. There may be some validity to this, as a good portion of the debt is being invested in passive real estate (McMansions) which do not generate income/cash flow for their residential holders. But I don't think anyone has done an in depth study of this question. Then you have the questions about how the accounting is done. How much of the trade balance is American companies sending capital (FDI) to build factories in places like China? This we find in the National Account balances. But even those numbers raise questions. How many partially or totally owned American companies hold assets that 'look' like foreign entities? RIG is an Oil and Services outfit that reincorporated offshore. How does that effect the 'ownership' of American assets, and the trade deficit? How much of what China builds ships to the US is coming from companies that are partially or totally owned subsids of American entities? If a Nike factory in China makes shoes sold in NYC for $150/pair, how do you parse the money spent on Chinese factories and labors, and who ultimately benefits? In other words, who own's Nike shares? The factory in China? These last two can work in reverse as well. We assume when we 'Buy American' that American labor will benefit. But how many Europeans own shares in Citigroup? Arab citizens? I think the 'nationalistic' approach has flaws. Forget Black/White/Hispanic or Euro/Asian/Arab/American. Some people with money built a factory so people in China could work and people in NYC could pay some incredible amount for a pair of shoes. In theory, things are working as they should, though I'd personally wonder about the sanity of some of it. As you can see, there are lots of questions here. I wouldn't even be asking them, if I weren't a bit concerned. What I take away from the Fed Speech, and my questions, is that the problem isn't as simple as is sometimes presented. I am trying to figure out why the foreigners want to have account surplus if this is a bad idea. They must be crazy and suicidal!! LOL I read this last night, which you might find interesting. nationalreview.com Keep asking questions, and eventually the answers will appear.