PeakTrader.com

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PeakTrader:

Beene, I’ve already explained it in detail. In summary, the U.S. “gains-in-trade” were larger than the gains-in-trade from its trading partners. So, the U.S. was able to consume more than produce in the global economy and in the long-run, e.g. through differences or changes in interest rates, inflation, and currency exchange rates. And, those freed-up limited resources allowed the U.S. to move more quickly into emerging industries, where the U.S. not only leads the world, it leads the rest of the world combined (in revenue and profit). The U.S. offshored older industries, imported those goods at lower prices and higher profits, and shifted resources into newer industries, with market power, and into high-end manufacturing.

I don’t know what debt you’re talking about. The U.S. has been a Black Hole in the global economy attracting imports and capital, and even attracting the owners of that capital themselves. Moreover, U.S. multinationals generally have much more market power than their foreign competitors.

If U.S. economic growth and employment have been too slow, you can’t blame that on moving from one economic revolution into the next more quickly. There are other factors why those resources aren’t employed more quickly, and efficiently. Nonetheless, globalization has increased “the size of the U.S. pie” substantially.

Here’s an article by the Fed:

Income Flows from U.S. Foreign Assets and Liabilities
Federal Reserve Bank of New York
November 14, 2012

Foreign investors placed roughly $1.0 trillion in U.S. assets in 2011, pushing the total value of their claims on the United States to $20.6 trillion. Over the same period, U.S. investors placed $0.5 trillion abroad, bringing total U.S. holdings of foreign assets to $16.4 trillion. One might expect that the large gap of -$4.2 trillion between U.S. assets and liabilities would come with a substantial servicing burden. Yet U.S. income receipts easily exceed payments abroad.

As we explain in this post, a key reason is that foreign investments in the United States are weighted toward interest-bearing assets currently paying a low rate of return while U.S. investments abroad are weighted toward multinationals’ foreign operations and other corporate claims earning a much higher rate of return.

U.S. investors earned a much higher rate of return on multinationals’ foreign operations and similar corporate holdings than did foreign investors here, 10.7 percent versus 5.8 percent, respectively.

The superior U.S. rate of return on FDI, as well as the greater tilt in U.S. foreign investments toward FDI, accounts for the $322 billion income surplus recorded in this category in 2011…The United States has earned a substantial premium on FDI investments at least since the 1960s.

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Beene, I passed the comp exams in International Trade (also, in Money & Central Banking).

Here’s a related article:

James Fallows studied American history and literature at Harvard, where he was the editor of the daily newspaper, the Harvard Crimson. From 1970 to 1972 Fallows studied economics at Oxford University as a Rhodes scholar.

January/February 2008

“Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.

Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for (Chinese) workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.

This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.”

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Mike, I stated before, the U.S. is able to maintain trade deficits in the long-run, because foreigners lose through differences or changes in inflation, interest rates, and currency exchange rates.

For example, over the past few decades, the Japanese yen appreciated from 360 to 100 per dollar, which means Japan received fewer and fewer yen per dollar.

And, it should be noted, many Japanese millionaires moved to the U.S., e.g. Hawaii, and Chinese millionaires are moving to the U.S., e.g. to start businesses, buy property, or their children stay after graduating from a U.S. college.

Those returning dollars not only generate premiums for Americans, e.g. in selling property, they create output, employment, and tax revenue, directly and indirectly, which also benefit Americans.

The World’s Reserve Currency
October 3, 2007

“A reserve currency is money that’s held by many countries as their foreign exchange reserves. It’s also the currency that’s typically used to price commodities, such as oil and gold, that are traded between countries.

A country whose currency is the predominant reserve currency benefits tremendously. In the case of the dollar, the U.S. benefits from the increased demand for the dollar that the reserve currency status creates.

Other countries give the U.S. valuable goods in exchange for dollars issued by the Federal Reserve. They also lend the dollars they’ve accumulated back to the U.S. at low interest rates. Most significantly, the U.S. benefits from importing these goods and exporting its inflation to other countries in the form of depreciating dollars.”

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“Recovery in Europe?”

Yes, but what type of recovery is it?

In the E.U., the mix of GDP is different than the U.S.. There’s more public consumption and less private consumption, some countries have trade surpluses (which add to GDP), and the entire E.U. economy has been on the verge of collapse from its bureaucratic weight.

Of course, the E.U. has thousands of years of accumulated wealth, unlike the U.S., which was a wilderness a few hundred years ago.

Yet, the E.U., although the top direct competitor of the U.S., lags the U.S. badly in the Information and Biotech revolutions. The E.U. has likely benefited tremendously as a “free rider” from new U.S. industries.

When the government pays a worker $50,000 to redistribute income, that’s $50,000 of GDP.

And, when the government pays a worker $50,000 to produce $20,000 of real value to society, that counts as $50,000 of GDP.

Yet, E.U. per capita GDP is still over $10,000 a year less than the U.S..

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Dan, if you disagree with my statements, which are based on extensive data, why don’t you prove them wrong? What exactly do you want me to respond to in the article? A lot of it seems to be speculation about the future.

The Europeans measure the E.U. economy similar to the U.S. national income accounts. Of course, there are differences between E.U. countries, and also differences between U.S. states.

For example, you can find charts of real per capita gross product for each state, from 2000 to 2013, by just moving the mouse over each link:

http://www.economagic.com/beagsp.htm

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