Showing posts with label trade deficit. Show all posts
Showing posts with label trade deficit. Show all posts

Thursday, November 12, 2015

Moggyzilla's guide to Modi's visit


(Click to balloon the deficit)


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Sunday, June 07, 2009

Selling off the family... gold?

A disturbing piece by Rob Kirby argues that the supposed reduction in the US trade deficit is partly accounted for by surreptitious exports of gold. Worrying on two fronts: first, that the real economic situation is worse than reported, and secondly, that when the gold market takes off, there won't be much left in the US. What will happen to the dollar?

Thursday, February 12, 2009

Symmetry; asymmetry

"China’s January surplus ($39.1b) is roughly the same size as the United States’ December deficit ($39.9b). It is reasonable to think it will roughly match the United States January deficit as well.

The extreme symmetry captures something real. Deficits and surpluses are shrinking globally now that the price of oil is at levels that roughly cover the oil exporters imports. Right now China’s (growing) surplus is clearly the main counterpart to the United States’ (shrinking) deficit" - Brad Setser

"I believe there is a greater than 25pc chance of a departure from the Eurozone given the social and economic behaviours of some countries within it" - John Moulton on the UK and the Euro.

Friday, December 19, 2008

Europe is keeping China (and America) going

A very interesting piece by Brad Setser, where he shows that the EU's currency strength and growing imports from China have offset the levelling in demand from America. His bottom line is that China's making money from us and lending it to the US.

Saturday, October 18, 2008

Are trade deficits a good thing?

This is from a professional academic economist in America. Is he correct? Should we cheer up?

Here's a letter that I sent recently to the Washington Times:

In "Other economic numbers need attention" (Oct. 16), William Hawkins assumes that every dollar increase in America's trade deficit is a dollar increase in Americans’ debt. Not so. If Mr. Hawkins pays for a new car with $20,000 cash and then observes the car dealer stuffing that cash into a mattress, Mr. Hawkins's trade deficit with that dealer rises by $20,000 while his debt to that dealer rises by exactly $0.

More fundamentally, the trade deficit means that foreigners invest in the U.S. rather than spend all of their dollars on U.S. exports. If Mr. Hawkins mistakenly thinks such investments to be undesirable, I have good news for him: as Uncle Sam meddles much more aggressively in capital markets, foreign investors will be scared away. America will then be much more likely to run trade surpluses - just as it did for nine out of ten years of the greatly depressed 1930s.

Sincerely,

Donald J. Boudreaux

Thursday, October 09, 2008

Hope

Brad Setser sees hope in the correction:

I increasingly suspect that one consequence of United States and Europe’s recent financial crisis will be a smaller deficit in both regions, and a smaller surplus in the emerging world.

Wednesday, July 16, 2008

Will the UK/US trade balance influence the dollar value of sterling?

Here's some trade stats for UK/USA. Last year, we imported $6.6 billion more from the US than we exported to them. Last night, the exchange rate for the pound rose above US$2.00. For some time, we seem to have been shadowing the dollar, but do we have an incentive to allow the dollar to fall further against the pound?

Or will we be more influenced by the desire not to devalue the amount we have loaned to the US via Treasury bonds? And then there is the possible extra unemployment that could result from UK goods becoming more expensive in dollar terms.

Any forex experts care to give a view?

UPDATE: Here's the answer, it seems:

Weak jobs data knocks pound vs dollar and euro (Reuters)

UPUPDATE: ...And here's a different answer:

Sterling up versus dollar, banks support (Reuters)

Wouldn't roulette be more honest, somehow? "Manque! Pair! Impair! Passe! Noir! Rouge! Numero 17!"

Saturday, May 10, 2008

Nationalism and internationalism

"James Higham" joins his voice to those who detect a revival of the nationalist spirit.

I don't think nationalism will be confined to losers in the game, or rejected by those who claim to love all mankind. Once there was Bukharin/Stalin's "Socialism in one country"; soon it'll be "China first". I can't blame the latter - they have worked so hard for what they've got, and won't understand why we think we can whinge it all back from them.

Speaking as the man in the street, my perception is that we have had a long period in which global businesses and a carpetbagging international managerial class developed and made fortunes. The liberal economists say this system is great for all of us, and should stay that way; perhaps so, if we had honest money and sound national budgets, so the correction mechanisms could steer the course of international trade more steadily.

But thanks to criminal negligence, incompetence and greed by those who could have maintained the integrity of the economic system, I think the aspirant working class and lower middle class in the developed world are paying heavily, and will pay more heavily. As they give up on their aspirations, we shall see a ballooning underclass, increasing the drag on national economic performance; but the situation may prove impossible to change for electoral reasons in a sort-of-democracy. The gap between rich and poor in our countries has widened, but will widen further: "Devil take the hindmost."

At the same time, on both sides of the Atlantic, people suspect a sell-out by the political class, which is intertwined (professionally and often maritally, or extra-maritally) with the business, media and public relations people. I have often said that I think we are seeing the reconstruction of the aristocracy in Europe. Many Americans also fear that their society is moving away from its historic and constitutional foundations.

The implications for democracy, social cohesion and international relations are worrying.

Thursday, March 06, 2008

From soup to nuts

Steve Moyer gives a pretty clear (occasionally a bit aerated) potted history of the woeful train of events, over the ten years from the start of the technology stock boom to the popping (and it's only just started) of the real estate bubble.

Nobody had to invest in tech stocks, but we all have to live somewhere. A bubble in housing is really pernicious, because it has implications for almost everyone.

Low interest rates inflated property prices, which led to much larger mortgages. Deflating valuations by raising interest rates would trap many mortgage-holders who have taken on big loans and kept up a good credit history so far.

Therefore, unless the government is willing to deal with the political pain of accelerated mortage defaults, interest rates must now stay low-ish for a long time. So I guess that credit risk will be adjusted not by price, but by access: it will simply get harder to find a willing lender. If there is less lending, then that (it seems to me) is deflationary.

I don't believe that the burden of the monster mortgage will be reduced by rapid general inflation of both wages and prices as in the 70s and 80s. Increased world demand for food and energy will inflate prices, but globalisation means that for many - especially the poorer sort - wages won't keep up. The cost of housing will be a generation-long millstone around the neck.

Inflating the currency won't help. It will reduce the wealth of savers, but if we are importing not only luxuries but (increasingly) necessities, inflated wages will be gobbled up by inflated import prices.

Some may argue that currency debasement will make our exports more competitive. But for a long time now, manufacturing industry has been disappearing like snow in midsummer. Even if our export prices should become more competitive because of foreign exchange rates, domestic productive capacity has shrivelled: whole factories and shipyards have gone abroad, and the related human resources have withered, too. You can't reconstruct the proletariat and their workplaces overnight. Gone are the days when the Midlands engineering worker tinkered with metal in his garden shed, showing his son how to use the tools. Half a mile from where I live, one of the big engineering plants set up by the Birmingham-based Lucas family was taken over first by the Italian Magneti Marelli, then by the Japanese super-corp Denso, and now it's been stripped of its machines and will be demolished to make way for... housing. Goodness know how the mortgages on them will be paid.

I think Karl Denninger is right: the banks must be made to eat some of the debt they fed us. Either they will be ruined, or we shall be.

Succinct

See this and more in Chris Puplava's piece.

Sunday, December 23, 2007

Visions of 2008

Following Dearieme's comment on the previous post*, I'm going to try to visualise a chain of events over the next year - guesswork, of course, with plenty of obvious ones:

USA

a marked deflation in property prices
a reduced demand for luxury goods and services
reduced imports of the above
consequent recession abroad
further interest rate cuts
higher unemployment
higher taxes
higher State and Federal budget deficits
a sell-off in equities
increased demand for bonds
a weakening currency
higher prices for food, fuel and clothing

increase in the price of good-quality agricultural land
consumer price inflation indices will not be able to continue to mask the real increases in costs of living, and this will have further consequences for public finances
public enquiries, leading eventually to a thorough reform of the financial system

UK

much the same as above, except I don't think our house prices will fall so far - the US subprime mess will hit investments, but we will drop our interest rates to devalue the pound to maintain stability against the dollar

Gold

will continue to fluctuate interestingly, but although some smart money is after it, there will be less spare money around generally, and other commodities will offer interesting opportunities for inflation-beaters. It's already above its inflation-adjusted long-term trend, and lenders will make sure that the real value of their loans is not destroyed by hyperinflation

... in short, slumpflation.

UPDATE

*and, by way of comparison, here is Karl Denninger's outlook in his Dec 24 post.
... plus a more sanguine assessment by Nadeem Walayat.

A Merry Christmas to all, and thanks for your visits and comments.

Sunday, December 16, 2007

What is long-term investment?

Jeff Prestridge, in today's UK "Mail on Sunday" finance section, reports that the Personal Assets trust, controlling £188 million, has changed its weighting from 60% cash earlier this year to 100% cash now. He's sniffy about their performance over the last 5 years, contrasting them with the likes of Baillie Gifford.

Well, I'm not a respected Fleet Street money journalist, merely a no-account bearish personal financial adviser, but I'd suggest that in the exciting investment world of today, maybe a five-year period is not a good basis for comparing long-term results, or conditioning expectations for the future.

I had a client ask my opinion about investments a couple of years ago, because his bank had been showing him their fund's marvellous growth over a three-year period. I took time to explain to my client that over the five years to date (then), the graph (as for the FTSE 100) described a kind of bowl shape, and the period chosen by his bank just happened to draw a line from the bottom of the bowl to the lip.

I then showed him the five-year line in all its loveliness:

I think it's fair to say that these are not ordinary times. There has been a steady build-up of electrical charge, so to speak, over something like a decade (some would say, much longer), and there may well be some powerful bolts unleashed as a result. Where will the lightning will strike next: a steeple, an oak tree, a cap badge - who can tell?

Massive debt; changes in the balance of international trade; demographic weakening of future public finances; sneaky currency devaluation; wild financial speculation; wars and the rumours of wars; imprecisely known ecological limits to growth; declining energy resources; the desperation of the world's poor to join our fantastic lifestyle; our fear that we may lose the comfortable living we used to imagine was our birthright; the corruption, abuse and neglect of the young; the selfishness of their parents and the middle-aged; the increasing burden and growing neglect and abuse of the old.

In all this turmoil, making five-year investment performance comparisons has an air of unreality, like planning tomorrow's menu on a mortally-wounded ocean liner.

Friday, December 14, 2007

Lead, kindly light

A glimmer of hope: Citibank's new boss has opted to put liabilities back onto the balance sheet, much to Karl Denninger's satisfaction.

Perhaps, after the next election, a new US President, with the strength of a fresh mandate, will be also able to act so decisively.

Friday, October 12, 2007

Peter Schiff grows

A short, cogent, scholarly essay by Peter Schiff in Financial Sense today, explaining why a falling dollar isn't a quick exit from America's economic problems.

As well a well-wrought urn becomes
The greatest ashes, as half-acre tombs.

Monday, August 27, 2007

Economic warfare?

Gerard Jackson, in The Market Oracle today, rehearses the economic explanation for what's going on between America and China. He lays the blame on the expansion of credit in the US monetary system, rather than sinister Chinese intentions.

That's not to say that some in China don't see the weakening of America - and the West generally - as a bonus. National pride can be underestimated.

But the real question is whether our democracies can take really tough decisions now, in order to prevent a much greater disaster later.

Tuesday, August 14, 2007

Which one's rich?

....................... Who's flying high now?

Let's see how we're doing.

America's reserve assets at April 2007 were $66.72 billion, of which about $11 bn in gold and $42 bn in foreign currency. The USA's estimated population is 301,139,947. So reserve assets per capita are $221.55.

China's foreign reserves minus gold were $1,202 billion in March. The World Gold Council says China has 600 tonnes of gold, and at today's price of $21,471.23 per kilo that's worth another $12.88 billion, making a total of $1,214.88 bn. China's population is estimated at 1,321,851,888. So China's reserves per capita are $919.07.

Using income statistics I quoted on August 9, an American's share of his/her country's reserve assets is worth 0.5% of per capita GDP; the equivalent value for a Chinese is 45.95% of nominal per capita GDP. But a dollar buys more in China: adjusted for purchasing power (PPP), Chinese reserve assets are worth around $5,254 per head.

So comparing national reserves only, China is 18.2 times richer than America in absolute terms, 4.15 times richer per capita in nominal terms, and 23.72 times richer per capita in terms of purchasing power
They worked for it. But, now what?
UPDATE
Here's a note to the US reserves statement that confuses me:
Treasury values its gold stock at $42.2222 per fine troy ounce and pursuant to 31 United States Code 5117 (b) issues gold certificates to the Federal Reserve at the same rate against all gold held.
Can I buy some at this price, please?

Tuesday, August 07, 2007

Why gold?

The Market Oracle yesterday and Gold Seek today both feature an article by Michael Kosares from his own site (USA Gold) on why he thinks you should own gold.

One reason is the fecklessness of the US Government:

"...the national debt stands at $8.9 trillion - nearly $30,000 for every man, woman and child in the United States. And there appears to be no end in sight to the fiscal madness. The debt clock ticks non-stop at the rate of about $1.3 billion per day.

I should point out that there is a difference between the "deficit" and "additions to the national debt." The deficit often quoted by politicians and the mainstream press is discounted by borrowings from the social security fund - a machination meant to dilute the real budget deficit which is the actual addition to the national debt."

I only knew recently about this business of putting their hands in the social security till and leaving an IOU. That is disturbing, because of the desperation it implies. Wasn't it the financial cost of the First World War that led to the raid on British social security funds and the switch to a rob-Peter-to-pay-Paul system?

Kosares starts his article with two quotes (I've added the sources):

"[U]nder the placid surface there are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. What really concerns me is that there seems to be so little willingness or capacity to do much about it. . . We are skating on thin ice." - Paul Volcker, Former Chairman of the Federal Reserve (Washington Post, 10 April 2005)

"[W]e live in a globalized environment and in a country which has enormous fiscal and external deficits. So you have to figure out some way -- which I have not done I might add -- to protect yourself if we should have a real currency problem here." - Robert Rubin, Former Treasury Secretary (interview with Kim Schoenholtz, Citigroup New York, 10 October 2006)

He discusses 6 trends: the US National Debt, the trade deficit, dropping real rates of investment return, derivatives, debt to foreigners, the US dollar's decline.

The conclusion, obviously, is that in times of doubt and distrust, gold will act as a haven for real wealth, as it has done in the past. "Price appreciation... is a sidebar to gold ownership. The main story is gold's asset preservation qualities."

Thursday, July 26, 2007

Futurology

Continuing the argument about sovereign wealth funds, what might this portend for US Treasury securities?

If foreign governments pull the rug out, there could be a run on the dollar on a scale that the US government wouldn't dare correct with proportionately high interest rates, seeing how indebted everyone is. The doomsters are probably right that it could happen, which is why everybody will make sure it doesn't.

And such a fall wouldn't be in the interest of creditor nations who still value the trade surpluses they enjoy with Uncle Sam. Many Chinese light manufacturing industries are working on narrow margins and don't want to see their profits disappear through foreign exchange movements (though their State is sufficiently powerful and ruthless to go that way if it wants to). I suspect that China will continue to develop towards heavier industries and gradually allow the trainer-stitching work to go to even poorer countries like Vietnam. Meanwhile, it's in no hurry to kill the US cow while she's still giving milk.

So here's my bet:
  1. For domestic political reasons, the US will not do what is needed to get the economy back on the level. It will continue to borrow but, fearful of its vulnerability to potentially unfriendly foreigners, lean on its friends for more finance.
  2. The US Treasury securities held by China will remain much the same, or even gradually increase in dollar terms, but "ally nations" will increase their holdings proportionately faster. There's not much an emotionally or politically vulnerable British PM won't do for a pat on the back at G8 summits, Bilderberg tie-looseners etc. Goodness knows how much of our future has been sacrificed to the last one's ego.
  3. Creditor nations will increase their sovereign wealth funds, favouring investments that are involved in the supply lines from their manufacturing concerns to our end purchasers. Marxism has moved on: you have to have control of the means of production, but even more so of the means of distribution.
  4. They will also invest in the lines leading towards their industries: energy, industrial metals and infrastructure. I also guess China will explore healthcare, energy-efficiency, food-oriented genetic research and environmental protection. And water. And foreign farmland (Bill Bonner and Marc Faber are really smart). City planning in all its aspects could become really important.
  5. If these countries were private investors, we'd be seeing their portfolios alter their balance between bonds and equities, in the direction of higher risk, higher returns. And like good long-term investors, they will get richer. Maybe eventually, as James Kynge says, demographics and healthcare will eat into this wealth, but it's not going to benefit the West much either way.
  6. In the US and the UK, our collective concern will be how to handle the social disruption in our own societies; our concern as individuals will be how to save and invest while we still can, and how to set up our own children in relative security.

They are the masters now - or will be soon

The BBC Ten o' Clock News last night featured an article about China's purchase of a share in Barclays Bank. I have posted a video of part of Chris Mayer's speech at Vancouver (see below), where he discusses "sovereign wealth funds".

China, India and Japan have enormous surpluses of money from their trade. They have bought US Treasury securities (bonds, i.e. loans to the US), but this is a thing governments do to park money that they might need back in year or two, when the trading balance has altered. Since the US/UK (etc) trade deficits are long-running, these eastern countries can now start thinking like young private investors, in which case equities become attractive - offering income from dividends AND the potential for capital growth.

These countries are turning our debt into their ownership, like an old Punch cartoon where a plumber took his customer's house in payment for his work.

This issue is big.