House of Paine

uncle's external deficit : another view( part one)

here's chicken little 




========================================


 " Our Money, Our Debt, Our Problem

Brad Setser and Nouriel Roubini

The U.S. current account deficit
the gap between
 what the United States earns abroad
 and what it spends abroad in a year
 is on track to reach 
seven percent of GDP
 in 2005. 


"That figure is unprecedented
 for a major economy"


" Yet modern-day Panglosses 
tell us not to worry "

----------------
choice chicken little or pangloss
funny fact
they trade costumes every other halloween -------------


" the world's greatest power
 they say
 can also be
 the world's greatest debtor"

 "the risk to U.S. financial stability
 posed by large foreign liabilities 
has been exaggerated."  they write
 "the world's appetite for U.S. assets 
bolsters U.S. predominance 
rather than undermines it."

"But in fact,
 the economic and financial risks 
that arise from the U.S. current account deficit 
(and the resulting dependence 
on foreign financing) 
have not been exaggerated.
 If anything, 
they have received too little attention
 and are set to grow in the coming years"


"take Levey and Brown :

they make three basic arguments.

 First, they claim 
that foreign central banks 
will probably continue to finance U.S. deficits.

 Second, they predict 
that even if foreign central banks
 do pull back at some point
 private investors will step in

 And finally they assume 
that even if this financing does not materialize
 a dollar crash would hurt
 Europe and Japan more
 than it would hurt the United States"


" Unfortunately, 
there is a good chance 
that all of these assumptions
 will prove false
 Foreign central banks 
may well stop financing growing U.S. deficits
 private equity investors 
might not take their place
 and the resulting adjustment process 
would prove quite painful 
for the United States"


-------------the table is now set ----------------------
--------------------------------------------

"
  DEBT DYNAMICS

"U.S. external debt is now equal
 to more than 25 percent of GDP
 a high level given that exports 
are a small fraction of U.S. GDP"

------------- "high "
  vs "small"

comparatives with no numbers 

sky hook stuff


give us a table of comparisons ------------


" More important, 
the United States is adding
 to its debt at an extraordinary pace"

---------- true -------------


 "The U.S. current account deficit 
is now comparable to those 
of Thailand and Mexico 
in the years leading up to
 their financial crises"

----------- please thailand ?????? ------------


"In the late 1990s,
 the United States borrowed abroad
 to finance private investment"


" Today, however, 
the country does most 
of its foreign borrowing
 to finance the federal budget deficit"

-------- which equals our global
 trans national  corporation 
                  investment 
             " prospecting and  security" budget --------------


" which is projected to be close to 
3.5 percent of GDP in 2005.

---------------- so half our deficit is fed budget -------------- 

" (In 2000, the United States had a surplus
 equal to 2.5 percent of GDP.) "

-------------and still ran a payments deficit -------------------


"Recent economic growth 
has not reduced the budget deficit
 but it has increased private demand 
for scarce savings  "


-----------

"scarce savings "......

bogus bogus bogus

try savings glut pal

already
we can see this is some kind of dick pull --------------

--------------- jesus i just realized i already cut this piece up once already

oh hell
lets see if this time i make more sense --------------- 





" In 2004, 
foreigners bought an amazing $900 billion
 in U.S. long-term bonds;"

" the United States exported 
a dollar of debt 
for every dollar of goods
 it sold abroad."

" Looking ahead, 
the U.S. debt position 
will only get worse."

" As external debt grows,
 interest payments on the debt will rise
 The current account deficit
 will continue to grow 
on the back of higher and higher
 payments on U.S. foreign debt 
even if the trade deficit stabilizes.
 That is why sustained trade deficits 
will set off 
the kind of explosive debt dynamics 
that lead to financial crises"




"Nothing to worry about
 argue Levey and Brown: 
foreigners may own a majority 
of U.S. Treasury bonds
 but their holdings 
of other types 
of U.S. debt and equities 
remain limited; 
the United States
 unlike other debtors
 borrows in its own currency
 displacing the negative consequences 
of a falling dollar 
onto its creditors;
 and the United States 
has substantial assets abroad
 the value of which 
rise as the dollar falls"

"In recent years
 the rising value 
of existing U.S. assets abroad 
has in fact offset 
much of the new borrowing 
the United States has taken out
 to finance its trade deficit"

"  but it is unwise
 to  bet on this alone "


" Most U.S. assets abroad are in Europe.
 Since the dollar already 
has fallen by around 40 percent
 against the euro,
 further falls in the dollar
 are likely to be against Asian currencies
 and the United States holds
 relatively few Asian assets " 


  "
         THE KINDNESS OF STRANGERS

The falling dollar also reduces 
the value of foreign investments 
in the United States"

" Eventually
 foreign creditors are likely
 to demand higher interest rates 
to offset the risk of further decreases"

--------- notice the criss cross
holders of us debt are switched 
with foreign direct investors 
nasty   hustle roubini 
  nasty  and cheap  -------------

" Over the past few years,
 the United States has found 
a novel way out 
of this dilemma:
 rather than selling its debt 
to private investors 
who care about the risk 
of financial losses"

---------- is an important door about to be openned here? -----------


" it has sold dollar debt
 at low rates to foreign central banks"

--------- ie  state bureaucrats playin 
with their own national  rubes collective funds 
      
all 
 to help their own corporations 
in case of radical  dollar devaluation 

and  if the swag 's value collapses

 well 
that  gets a "torro"  move
            a pass  thru
  to the  cb's  ultimate lenders
 
the sovereign  jack assery  of blahbobia 

if big guys get burned
 
the state has
 the   credit powers to refloat em 
and the collection powers
     known as  taxation to  back their moves -----------

 
" The extent of U.S. dependence 
on only ten or so central banks,
 most of them in Asia, is stunning: "

"in 2004, foreign central banks 
probably increased their dollar reserves
 by almost $500 billion, 
providing much of the financing 
the United States needed 
to run a $665 billion current account deficit"

" These banks are not buying 
dollar-denominated bonds 
because they are attracted 
to U.S. economic strength"

--------- oh we don't got collateral ????-----------------


 " or
 the high returns offered 
in the United States,
 or the liquidity of U.S. markets; "

"they are buying them 
because they fear U.S. weakness."

-------- dollar weakness???
or 
 fundemental economic weakness ????-----------

" If foreign central banks 
stopped buying dollar-denominated bonds,
 the dollar would fall dramatically 
against their currencies,
 U.S. interest rates 
would rapidly rise,
and the U.S. economy would slow"

------------notice the moderate final adjective

"slow "   ----------------------------

"Foreign central banks
 have financed the United States 
to keep their export sectors
 heavily dependent 
on U.S. consumer spending humming"


----------- okay so far -------
"
 But they now must weigh 
the benefits of providing 
the United States with such 
"vendor financing" 
against the rising costs 
of keeping the current system going"


----------which are ????---------------------

"Now, foreign central banks 
with large dollar holdings 
are facing the prospect 
of huge losses as a result 
of the dollar's decline"

----------- wait these are cb's here not privateers ---------------


" A 20 percent increase 
in the value of the yuan 
against the dollar
 would reduce the value 
of China's roughly $450 billion
 in dollar reserves
 by about $100 billion
 -- 6 percent of China's GDP. 

------------about 100 dollars per han head --------------------------


"In four years, 

       if nothing changes,"

------------  "if nothing changes "
                fatal fool's assumption ----------------------


" Chinese dollar reserves
 could reach $1.4 trillion,
 raising the costs of a falling dollar
 to $300 billion -- some 12 percent of China's GDP.
 In short, the longer China continues
 to finance U.S. deficits, 
the larger its ultimate losses"


----------- but nut ball 
if the goobled  dolar crap is seen
as  the cost of an even greater benefitkeeping the us market wide open
  and thus 
the  10 % annual gdp growth rates alive and well -----------.

"More important,
 the current arrangement increasingly risks
 creating domestic financial trouble."

----------- i'll be in a scrape
  if i stay a moment longer
looking out 
from over here inside the han cb 
 so
  i'll look in  --------------


" Growing reserves naturally
 lead to growth in the money supply
 raising the risk of inflation"

-------- oh jesus here comes 
 the ultimate  war horse  
  domestic inflation ---------------

" In order to avert this risk, 
central banks must resort to
 a process called "sterilization": 
selling local-currency bonds 
to reduce the amount of cash
 in circulation."

" But this process is expensive,
 especially if local interest rates
 are higher than dollar interest rates"

" Chinese domestic interest rates are low
 so China does not face this problem"

" But it does face another: 
rapid monetary growth
 has contributed to a boom 
in bank credit
 excessive investment growth
 and a real estate bubble"


" Thus far, China has used price controls 
to keep prices from rising,
 but such controls,
 which cause deep distortions 
in the economy,
 cannot keep the lid on inflation forever"


------------- commodity controls 
are here confused with asset price controls
 efficency considerations are much more remote
if its lot prices being stiffled and not steel prices  --------------

" Eventually,
 rising domestic prices 
will erode China's competitiveness 
even if it keeps its currency pegged
 at its current level.
 China is likely to let 
its currency appreciate 
rather than accept 
socially and politically 
destabilizing inflation"

----------- this is pure scientific hoodoo
                      fraudster go home ------------------

"Let's face it: 
most Asian central banks 
view financing the U.S. deficit
 as a burden, 
one that they would rather not shoulder."

--hey  i'd like free electricity and water so ....------------

 "A recent survey of central banks
 (which did not include
 the People's Bank of China or the Bank of Japan)
 indicated that most want to scale back 
their dollar purchases,
and some smaller central banks 
are already adding more euros 
and yen to their portfolios.
 In March, a former manager
of China's currency reserves questioned 
China's current development strategy,
 asking why it should seek out 
foreign investors looking 
for a 15 percent return 
on their investment 
only to have the central bank 
lend these funds back to
 the United States at 4 percent."

------------- answer
to get that direct investment
that leads to open back home markets that's why ?-----

"
 China will conclude 
that rapid accumulation of dollar reserves 
no longer serves its interests
 sooner than optimists think"

---------  "sooner "
          wow fuzzy eh ??? ----------------------.



" Many claim that Asian central banks 
have to hold on to their dollars 
and the U.S. bonds 
that they have bought with their dollars 
because a selloff would drive the market
 for dollars lower
 and thus be self-defeating. "


"This argument, however, 
misses a key point:"

--are we about to get enlightenment at long last here ???----

" foreign central banks
 do not need to dump their existing stocks
 of U.S. dollars
 to cause financial distress 
in the United States; 
they only need to slow their new purchases
 of dollar debt. "

---------- oh my lord
u pea brain ----------------------

"If central banks decide 
that $2.5 trillion in dollar reserves 
is enough,
the result will be 
a sharp fall in the dollar
 and a sharp rise in U.S. interest rates"


----------- but the argument was
a sharply  falling dollar isn't in their interests
 whats changed their mind

u left a hole where your mouth is bubster --------------


-end of section

yup

the mouse did its circle
and now

we move to ...
the next attraction ----------------

"Levey and Brown 
further argue that
even if foreign central banks 
scale back their financing
 there is little to worry about
 since the United States 
is on the verge 
of a new information technology (IT) revolution 
that will attract a new wave 
of investment from abroad"

------------- see now we know why levey and brown were picked

 this new  no worry line 
   is in fact as silly
  as danny kaye's boxing  rocky marciano 

i won't even give u roubini's mugging of it  --------------

---but he does glance at one of the reasons
that things won't stay the same ------------

" High equity inflows 
are  likely to come when 
 a  fall in the dollar
 makes U.S. assets fire-sale cheap "


----------- right beany
        a major counter flow 
will insue ---------------

"Other countries do of course depend
 on U.S. spending to make up for a lack of demand 
inside their own economies."

----see there is a  global savings glut not a scarcity -----

 "But the United States cannot
 take comfort 
in the fact that the necessary "adjustment" 
will be painful abroad. "

"If a falling dollar 
slows German, Japanese, or even Chinese growth
, it will become even harder
 for the United States to reduce 
its trade deficit
 by exporting more
 -- a key part of any "soft landing" scenario"

----------oh no we're circling again...
if 
a "not if "
 were 
an if
then .....---------------------
.

"And even if the United States 
has relatively little to fear
 from a falling dollar,
 it has much to fear 
from an increase in interest rates."

------------- 
notice we have just 
           pillar leaped
                  to another post --------------


 "If central banks ever cut back 
on their dollar purchases,
 private investors abroad
 would likely demand
 much higher interest rates"

" They would have to be compensated 
for the risk of buying a dollar
 that may fall even more."

---if  profit mad privateers
   were all there was
  to sop up the t bills
                sure but only by taking out
 the cb's do u get such a set up -----------

" Given how leveraged the U.S. economy has become
, with large domestic and external debts
 any large rise in interest rates 
would do significant damage"


---------- right the whole earth loses
                 so it won't happen -------------------.

end of part one 

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