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el freako
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Bristol, European Union
Oct 1999
time: 05:30
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quote:
Originally posted by Adam Smith
Interesting Stiglitz should make this charge with respect to the US when many countries have larger deficits as a percent of GDP even after instituting the fiscal reforms he mentions. |
Which countries do you mean?
AFAIK only Japan has a bigger deficit as a percentage of GDP in the G7.
Germany's and France's are around 4% of GDP. but using a comparable measure the US's is nearly 5%.
What is more worrying is the deterioration in the US's structural deficit (i.e. that adjusting for the effects of the economic cycle)
Here the US has seen a deterioration equivalent to 4% of trend GDP - compared to no change in the Eurozone and Japan.
All of the deterioration in Europe's and Japan's budget balances (around 1% to 3% of GDP) can be explained by the economic slowdow but it only accounts for one third of the US's deterioration (which is an alarming 6% of GDP) - the rest is due to tax cuts and higher discrestionery spending (mostly defence).
quote:
Originally posted by Imran Siddiqui
Most investment in the United States comes from overseas. It is that reason why our low savings rate at this point in time doesn't matter. |
Indeed the US is now totally dependent on foreign investment to fund any increase in it's capital stock (in other words Americans aren't saving enough to cover the replacement of worn out goods in their own economy - and certainly have nothing left to invest in things that will produce higher living standards in the future).
I'm not sure that it doesn't matter though, around half of this 'investment' comes from east asian central banks buying dollars in an attempt to hold their own currencies down, which surely counts as dangerously 'hot' money.
Not saving enough and relying on 'hot' foreign money to finance your investment is a very dangerous place to be - just look at the Mexicans in the early 1980's and Argentina a couple of years ago.
Last edited by el freako on 17-09-2003 at 23:41
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el freako
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Bristol, European Union
Oct 1999
time: 05:30
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quote:
Originally posted by Adam Smith
ef:
I don't have any data handy, but I had the impression that most EU countries were struggling to meet their Maastricht deficit obligations, which is about the level the US is rising to.
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Sorry, but that's not comparing like with like - the Maastricht definintion of a deficit is different from the one commonly used in the US - specifically it is the net lending of the public sector as a whole - according to the OECD's economic outlook no 73 this is forecast to be -4.6% for the US, -3.7% for France, -3.6% for Germany and -2.3% for the EU as a whole.
quote:
Originally posted by Adam Smith
On second thought, I should have framed the issue in terms of debt to GDP, which reflects how much the governments need to finance, not deficit to GDP, which reflects how the position changes year to year. My impression, again without the data handy, is that EU / G7 government debts are a much higher percentage of GDP than the US is. |
EU governments have higher gross financial liablilties than the US (EU=72% of GDP, US=64%), but they also have more financial assets so their net position is roughly the same (EU=49% vs US=47%)
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el freako
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Bristol, European Union
Oct 1999
time: 05:30
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quote:
Originally posted by Adam Smith
I'm not getting this. Net lending or net borrowing? |
If net lending is negative then it's actually borrowing - it's just the term used, which I admit can be a bit confusing when applied to the terminally deficit afflicted public sector.
quote:
Originally posted by Adam Smith
If deficits have to be covered with borrowed money, what's the difference between US and EU definitions? |
The US's BEA also calculates net lending, see this page for details (the most commonly used US definiation of the deficit is at line 21, but the equivalent EU one is at line 24), as you can see there is a consistant difference of around $100bn.
quote:
Originally posted by Adam Smith
I'm not too concerned about what is, in a sense, the government's debt/equity ratio. The concern is not that they will default on debts, but rather that they will borrow a large amount relative to the available savings pool. |
Well, compared to gross national saving then the US's deficit (using the net lending figure above) amounts to nearly a third of US domestic savings (which is at around 15% of GDP), whilst the EU's government's borrowing amounts to just over a tenth of theirs (which are at 20%).
Last edited by el freako on 18-09-2003 at 01:40
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:30
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A couple of things to note.
(1) Surpluses are nice for a while, but they were becoming too large.
Federal tax receipts as a share of the economy were getting out of hand (outside the post-WWII pattern) and it was time to draw the receipts down.
(2) Large deficits are scary, but if there is ever a time for large deficits, it is during a period similar to the one we have now, where interest rates are low and we're climbing out of a recession.
(3) The current federal fiscal situation is entirely manageable and our current burn rate and plans for Iraq have almost no possibility of impacting it long term. Iraq is not a recurring expense. Eventually, we will be out of there.
(4) The US trade deficit is large, but it's primarily that way because some other countries want it that way. Once that attitude changes, the dollar will fall further, our manufacturers will get a respite, and the gap will close in the long run. Nothing to worry about, unless this change is especially sudden.
Last edited by DanS on 18-09-2003 at 02:39
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el freako
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Bristol, European Union
Oct 1999
time: 05:30
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quote:
Originally posted by DanS
A couple of things to note.
Federal tax receipts as a share of the economy were getting out of hand (outside the post-WWII pattern) and it was time to draw the receipts down.
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Agreed, the 35% of GDP that the government recieved in income was significantly above the 30% to 32% range it has run in since the late 1960's, however the Bush years have also mostly reversed the cut's in the share of GDP that the government was spending as well so the fiscal situation of the Reagan years is being revisited.
quote:
Originally posted by DanS
(2) Large deficits are scary, but if there is ever a time for large deficits, it is during a period similar to the one we have now, where interest rates are low and we're climbing out of a recession.
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True, but the deterioration in your structural deficit is very large (in the order of 4% of GDP), at some point during your recovery either taxes will have to rise significantly or spending will have to fall sharply.
quote:
Originally posted by DanS
(3) The current federal fiscal situation is entirely manageable and our current burn rate and plans for Iraq have almost no possibility of impacting it long term. Iraq is not a recurring expense. Eventually, we will be out of there.
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Not unless you do something to correct the structural problems you won't - the US's structural deficit is 4%, which means that you need nominal GDP growth of 8.5% just to stop your debt/gdp burden from rising - I don't think this is achieveable without a major rise in inflation.
quote:
Originally posted by DanS
(4) The US trade deficit is large, but it's primarily that way because some other countries want it that way. Once that attitude changes, the dollar will fall further, our manufacturers will get a respite, and the gap will close in the long run. Nothing to worry about, unless this change is especially sudden. |
But there will either be pain as US households have to cut back sharply on consumption in order to release more funds for investment or investment itself will suffer with dire consequences for the long-term health of your economy.
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:30
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quote:
however the Bush years have also mostly reversed the cut's in the share of GDP that the government was spending as well so the fiscal situation of the Reagan years is being revisited |
Well, the Reagan years were different in many respects, even though the numbers are similar (well, not quite, yet). We aren't coming out of a decade of stagflation, for one. We also managed to have a surplus for a couple of years, so this gives us a little slack on the other side, as long as it is temporary. Also, interest rates were a lot higher then versus now. Lastly, Reagan's military spending was recurring, while Bush's won't be. Even the hawks are talking about military spending in the relatively modest 3.5% of the economy range.
quote:
True, but the deterioration in your structural deficit is very large (in the order of 4% of GDP), at some point during your recovery either taxes will have to rise significantly or spending will have to fall sharply. |
Over time, this structural deficit will shrink. The US suffers from income tax bracket creep. If Bush doesn't cut taxes again, then taxes will naturally gradually rise over time, as happened during the Clinton years. On the spending side, it doesn't take much discipline to keep spending increases a percent or whatever below nominal economic growth.
Of course, you can make the argument that Bush and the congress don't even have the discipline to keep spending in check.
quote:
But there will either be pain as US households have to cut back sharply on consumption in order to release more funds for investment or investment itself will suffer with dire consequences for the long-term health of your economy. |
This can be done gradually. It need not be a crash course.
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17-09-2003 21:41
So raising interest rates and making investment more profitable would be politically suicidal? What?
I was hoping you'd forgotten that.
but I'd rather disaude you by saying this is my reasoning Agathon: That I and probably you and others are primarily on the OTF to share information and to reach a more total awareness of what's really going on. People are real scared because of 9/11, and I see the way beyond it in showing the limitations of violence (that became obvious to me in taking aikido, where you use another's violence to throw him to the mat
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