Full Version: Thoughts on the deficit
Foreign investors put over $800 billion back into the US annually. This has many benefits to us. It helps maintain a steady supply of credit and It helps keep interest rates down. Most importantly, I think, it ensures that our trade deficit ends up back here in the U.S. instead of other nations with questionable intentions. Where else would you rather see this money go? Let us pretend our federal government balanced its budget and no longer needed to borrow. Would foreign money still be invested here? If domestic lenders could produce the entire supply of credit where would all the foreign money go?
QUOTE (Brooklyn @ Jan 11 2006, 02:04 PM)
Foreign investors put over $800 billion back into the US annually. This has many benefits to us. It helps maintain a steady supply of credit and It helps keep interest rates down. Most importantly, I think, it ensures that our trade deficit ends up back here in the U.S. instead of other nations with questionable intentions. Where else would you rather see this money go? Let us pretend our federal government balanced its budget and no longer needed to borrow. Would foreign money still be invested here? If domestic lenders could produce the entire supply of credit where would all the foreign money go?
YOu are one quick study Brooklyn. Perhaps you can contact Grizz, and persuade him to allow you to coach him on his economics threads.
Oh there is nothing the matter with that, but you should always remeber this as well:
Foreign investors finance US deficit
America buys more than it sells and spends more than it earns. So who bankrolls the shortfalls? Foreign investors.
The shortfall on all trade and investment income with the rest of the world swelled to an all-time high of $US665.9 billion ($A840.89 billion) in 2004, according to the Commerce Department.
"The United States has to get the money from somewhere and that is basically coming from foreigners," said David Watt, senior economist at BMO Nesbitt Burns, about the current account deficit.
International investors finance the deficit in a number of ways. When foreign companies sell Americans cars, clothes and other goods, those businesses are willing to be paid in dollars. That money is then invested in US stocks, corporate bonds and Treasury securities.
Foreign governments - mainly central banks - help to finance the deficits by investing in US securities, including the Treasury's. Foreigners' appetite for US investments also helps to finance the government's record budget deficits.
If foreign investors were to lose some of their appetite in accumulating dollar-denominated assets at the current rapid rate and unload their holdings, the prices of US stocks and bonds could plunge. And, interest rates - including those for mortgages - could soar.
The economy could slow and the vibrant US housing market could lose its shine.
So far, foreigners are willing to lend the United States money to finance its deficits, Federal Reserve Chairman Alan Greenspan says. The concern is if that changes.
Net purchases by foreigners of US stocks, corporate bonds, Treasury securities and other investments totaled $US92.5 ($A116.81) billion in January, a sharp increase from December, the Treasury Department reported.
Of that total, $US78.2 billion ($A98.75 billion) came from private foreign investors, while foreign governments snapped up $US14.3 billion ($A18.06 billion) worth of securities, the department's data show.
Some economists believe the current account will climb to more than $US700 billion ($A883.95 billion) this year. That would take about $US2 billion ($A2.53 billion) a day to finance it, they said.
The big flow of money from foreign investors probably has helped to keep US interest rates at lower levels than would otherwise have been the case, analysts said. That has been good for borrowers in this country, they said.
In recent weeks, a South Korean official and the Japanese prime minister suggested that their countries might want to diversify their foreign holdings into currencies other than the dollar. Their words spooked currency investors and sent the dollar into a temporary nose dive.
Those instances raised fresh worries about the appetite of foreign investors to finance the United State's twin deficits.
Japan, followed by China and then Britain are the biggest holders of Treasury securities.
"At some point foreigners - just as any individual investors - may look at their portfolios and decide that they have too many dollars or US financial markets aren't so attractive," said Lynn Reaser, chief economist at Banc of America Capital Management.
Japan's holdings in January stood at $US701.6 billion ($A885.97 billion), down from $US711.8 billion ($A898.85 billion) in December, according to the Treasury Department.
China's holdings came to $US194.5 billion ($A245.61 billion) in January, compared with $US193.8 billion ($A244.73 billion) in the previous month. Britain's holdings stood at $US163 billion ($A205.83 billion)in January, down from $US163.7 billion ($A206.72 billion).
"We have got to attract foreign investment. If for various reasons, foreigners find our investment less appetizing or appealing, interest rates have to move to higher levels or the dollar has to fall or both," Reaser said.
The once high-flying dollar has fallen in value over the past three years. In theory, that should narrow the US trade deficit because it makes American exports cheaper and imports to the United States more expensive.
Higher interest rates in the United States also would tend to restrain economic activity, which would diminish Americans' appetite for imports. That could help the trade picture if overseas demand for US-made goods is stronger.
(Never rely soley on foreign investors to bail you out of the hole. )
Foreign investors finance US deficit
America buys more than it sells and spends more than it earns. So who bankrolls the shortfalls? Foreign investors.
The shortfall on all trade and investment income with the rest of the world swelled to an all-time high of $US665.9 billion ($A840.89 billion) in 2004, according to the Commerce Department.
"The United States has to get the money from somewhere and that is basically coming from foreigners," said David Watt, senior economist at BMO Nesbitt Burns, about the current account deficit.
International investors finance the deficit in a number of ways. When foreign companies sell Americans cars, clothes and other goods, those businesses are willing to be paid in dollars. That money is then invested in US stocks, corporate bonds and Treasury securities.
Foreign governments - mainly central banks - help to finance the deficits by investing in US securities, including the Treasury's. Foreigners' appetite for US investments also helps to finance the government's record budget deficits.
If foreign investors were to lose some of their appetite in accumulating dollar-denominated assets at the current rapid rate and unload their holdings, the prices of US stocks and bonds could plunge. And, interest rates - including those for mortgages - could soar.
The economy could slow and the vibrant US housing market could lose its shine.
So far, foreigners are willing to lend the United States money to finance its deficits, Federal Reserve Chairman Alan Greenspan says. The concern is if that changes.
Net purchases by foreigners of US stocks, corporate bonds, Treasury securities and other investments totaled $US92.5 ($A116.81) billion in January, a sharp increase from December, the Treasury Department reported.
Of that total, $US78.2 billion ($A98.75 billion) came from private foreign investors, while foreign governments snapped up $US14.3 billion ($A18.06 billion) worth of securities, the department's data show.
Some economists believe the current account will climb to more than $US700 billion ($A883.95 billion) this year. That would take about $US2 billion ($A2.53 billion) a day to finance it, they said.
The big flow of money from foreign investors probably has helped to keep US interest rates at lower levels than would otherwise have been the case, analysts said. That has been good for borrowers in this country, they said.
In recent weeks, a South Korean official and the Japanese prime minister suggested that their countries might want to diversify their foreign holdings into currencies other than the dollar. Their words spooked currency investors and sent the dollar into a temporary nose dive.
Those instances raised fresh worries about the appetite of foreign investors to finance the United State's twin deficits.
Japan, followed by China and then Britain are the biggest holders of Treasury securities.
"At some point foreigners - just as any individual investors - may look at their portfolios and decide that they have too many dollars or US financial markets aren't so attractive," said Lynn Reaser, chief economist at Banc of America Capital Management.
Japan's holdings in January stood at $US701.6 billion ($A885.97 billion), down from $US711.8 billion ($A898.85 billion) in December, according to the Treasury Department.
China's holdings came to $US194.5 billion ($A245.61 billion) in January, compared with $US193.8 billion ($A244.73 billion) in the previous month. Britain's holdings stood at $US163 billion ($A205.83 billion)in January, down from $US163.7 billion ($A206.72 billion).
"We have got to attract foreign investment. If for various reasons, foreigners find our investment less appetizing or appealing, interest rates have to move to higher levels or the dollar has to fall or both," Reaser said.
The once high-flying dollar has fallen in value over the past three years. In theory, that should narrow the US trade deficit because it makes American exports cheaper and imports to the United States more expensive.
Higher interest rates in the United States also would tend to restrain economic activity, which would diminish Americans' appetite for imports. That could help the trade picture if overseas demand for US-made goods is stronger.
(Never rely soley on foreign investors to bail you out of the hole.
)
Just a couple of things that are still not realized by the Grizz.
1. It is percent of debt to income that counts. The US ratio is still relatively small, compared to most other countries.
2. the US economy is a very appealing investment, as it is doing very well, thank you. Countries, such as Japan and Korea, may wish to diversify and make words to that effect, but if they are unable to find another market that gave a better return on their investment, then they would do so.
Grizz, I will grant that is would be preferred to have one's debt totally in order, but tell me, is yours? Are you out of debt? And what is the percent of debt to income are you in? If it is under 7-8 %, as the US, then you are doing quite well.
And one other thing. If your debt is higher than the US's, what are you going to do to get it smaller? Will you cut back on your spending, or will you be looking for a way to increase your income? Somehow, I would suspect that the most practical would be the later.
Incidentally, that is what Supply-Side Economics prefers also. Increase the size of the economy, and other things tend to take care of themselves.
BTW, have you started your FREE course with Supply-Side Economics yet? No? Well, get with the program. It's free!
1. It is percent of debt to income that counts. The US ratio is still relatively small, compared to most other countries.
2. the US economy is a very appealing investment, as it is doing very well, thank you. Countries, such as Japan and Korea, may wish to diversify and make words to that effect, but if they are unable to find another market that gave a better return on their investment, then they would do so.
Grizz, I will grant that is would be preferred to have one's debt totally in order, but tell me, is yours? Are you out of debt? And what is the percent of debt to income are you in? If it is under 7-8 %, as the US, then you are doing quite well.
And one other thing. If your debt is higher than the US's, what are you going to do to get it smaller? Will you cut back on your spending, or will you be looking for a way to increase your income? Somehow, I would suspect that the most practical would be the later.
Incidentally, that is what Supply-Side Economics prefers also. Increase the size of the economy, and other things tend to take care of themselves.
BTW, have you started your FREE course with Supply-Side Economics yet? No? Well, get with the program. It's free!
QUOTE
If foreign investors were to lose some of their appetite in accumulating dollar-denominated assets at the current rapid rate and unload their holdings, the prices of US stocks and bonds could plunge. And, interest rates - including those for mortgages - could soar.
The foreign investors won't lose their appetite because they want to make money. The best way for foreign investors to make money is to invest in the American economy. If it wasn't as close to sure thing as it gets we wouldn't see such huge inflows.
Incredible HUBRIS!
QUOTE (Thaiquila @ Jan 12 2006, 09:24 AM)
Incredible HUBRIS!
No, just a fact TQ! If facts and hubris go hand and hand, I want some for myself.
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