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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (161234)	4/29/2005 12:45:38 PM
From: neolib	Read Replies (1) \| Respond to of 281500

Let's imagine the imbalance of trade between urban and rural economies. Or we can imagine the imbalance of trade between entire regions of the US, such as California versus the South.f I don't follow this one. Urban/rural, or regions of the US all are under one government, one set of rules, same currency, free movement of goods, services, and people. If one region would normally act to depress the currency, and another region might be bolstering it. The net soundness of the financial system is the some total. Rather different from the $ vs other world currencies. I agree with much of the rest of your post. However, this part: In sum, T-bills are a respository for capital for which these exporting countries cannot find better investment vehicles. is the basic difference wrt to what you and I think. Delete the term exporting in the above sentence, and IMO they could find better investments. Since they are exporting, they can't afford not to lend to the US consumer. This is where I see the danger lurking.

To: Hawkmoon who wrote (161234)	4/30/2005 11:22:49 AM
From: jttmab	Read Replies (1) \| Respond to of 281500

Or even better, let's visit back to 1945, when the US economy accounted for 50% of total global GDP. There was a huge trade deficit at that time, as I recall. It was necessary for the US to act as the buyer of last resort in order to spur economic growth in these nations. And some of these nations, such as Britain, had a TREMENDOUS national debt (250%xGDP) to pay back, including debt owed to the US. That's bizarre. We had 50% of the world's GDP and we had a huge trade deficit? What was it we were buying? We were far less dependent on foreign oil [a major source of today's imports and the manufacturing capacity of our competitors [for all practical purposes, Europe] was destroyed during WWII. "Since World War II, the United States has supported agreements among nations to eliminate barriers to international trade and investment. Despite occasional resistance, that support has generally reflected a public consensus about the benefits to be gained from free trade. Since long before the war, the United States had run an almost unbroken string of trade surpluses--that is, an excess of exports over imports--and the war damaged or destroyed much of the most significant international competition for U.S. industry. Consequently, before 1970, U.S. industry seemed to have little to fear and much to gain from free trade. After 1970, however, the almost unbroken string of trade surpluses turned into one of trade deficits, and in the 1980s and 1990s, those deficits grew quite large (see Figure 1). ..." cbo.gov Having trade surpluses prior to 1970 creates wealth in the US, whereas today's trade deficits exports "wealth". Further, WWII debt financed US manufacturing capacity and with the end of WWII, Federal spending decreased dramatically. Combined with the beginning of the baby boomers the whole picture is one of economic growth. Quite different than we have today. In sum, T-bills are a respository for capital for which these exporting countries cannot find better investment vehicles. It depends on which country we're talking about and what is meant by "better". China, for example is looking at an annual GDP growth of ~10% and is taking measures to slow down that growth. They're requiring their financial institutions to hold more money in reserves and give out fewer loans. They're also getting around $9B/month in direct foreign investment. They can't afford to invest more money in China which would further increase GDP growth rate in China. They have to park their cash in something crappy, like T-Bills. I would also expect that China is investing in other parts of the world. Asia is obvious and there is a lot of activity between South America/China that I would speculate involves Chinese investment. No one [or country] invests in a single instrument; Warren Buffet is investing in a dozen foreign currencies. Then there's the aspect of direct foreign investment inflows to the US. Between 1992-1997 the US was getting an average of $60B per year of inflows. That peaked in 2000 with $314B of inflows and in 2003 there was a mere $30B of foreign direct investment. [http://www.unctad.org/en/docs/wir2004overview_en.pdf see pdf page 9]. ... as a piece of trivia ... which country receives more foreign investment [in absolute $$$] than any other country? Take a guess and then see the answer on pdf page 17; I was surprised. In summary, the world isn't what it was in 1945. The US may have had large deficit, but that's where the similarity ends. Instead of being the manufacturing powerhouse of the world, our manufacturing capacity is dwindling away to nothing; foreign investment is going elsewhere in the world; and there's a global transformation to services. Oil [compared to post 1945] is in short supply with a virtual guarantee that places like China and India will gobble up oil an other natural resources, raising commodity prices. Further, I don't see federal expenditures dramatically decreasing like they did post WWII, the Korean War, or the Vietnam War. The Federal Government had a nice ride spending social security trust funds and one way or another that's coming to an abrupt end. About the only "growth" industry I see coming up is health care for the aging baby boomers followed by funeral homes. Maybe there's a growth industry in global warming reconstruction from increased hurricanes in the southeast and rising sea levels. Surrounding Florida with a big dyke would contribute to GDP growth. jttmab