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September 30, 2014

Comments

Ralph Musgrave

I'm all in favor of giving foreigners bits of paper in exchange for real goods and services. If we can arrange for the interest we pay them to be less than the rate of inflation (which is easily done)then we profit at the expense of our creditors.

A country which does this is acting very much like a bank: supplying those who want it with liquid assets, and charging for the service.

Liam

To be fair, George Osborne was very, very keen to blame the Eurozone when UK growth disappeared in 2010, 2011 and 2012.

Neil Wilson

Export-led nations need to export somewhere, and in a *floating rate system* that means they will run out of the right sort of money to do so eventually (because they have to use their own money back home to pay staff and suppliers).

So export-led nations have to execute swaps in the currency market to get their own currency into the system and let the trades complete. That can be done via the multinational commercial banks or directly with the central bank. Either works.

In a world that is told repeatedly to export 'vendor financing' has become the way to inject your own money into your own economy. That's why we see sovereign wealth funds and the like. It is the final resting place for all those foreign money things nobody at home actually wants to use - because it would destroy the export market.

It's the exporters stupid.

guthrie

5.65 million unemployed? Surely underemployed? Or am I missing a joke?

rogerh

Those wicked foreigners again. So, other folk won't buy our stuff because they prefer to stuff their cash under the mattress. Or they are buying stuff from someone else. Who are these other folk anyway - the Chinese, the Saudis, the (other) Europeans. My worry is that the axis of world trade may be shifting away from Europe and the US. Perhaps a bit of creative destruction - a nice little war somewhere safely afar will encourage a bit of overseas trade. Trouble is that new infrastructure afar is cheaply provided by others, so I doubt that will help us much. Worse, the economics of arms sales to 'friends' is unlikely to help much either.

Magpie

Chris,

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0

Search for this paragraph (the second after the equation above)

"As another example, assume that the foreign sector spends less than its income, with a budget surplus of $20 billion. At the same time, the domestic government sector also spends less than its income, running a budget surplus of $10 billion. From our accounting identity, we know that over the same period the domestic private sector must have run a budget deficit equal to $30 billion ($20 billion plus $10 billion). At the same time, its net financial wealth will have fallen by $30 billion as it sold assets and issued debt. Meanwhile, the domestic government sector will have increased its net financial wealth by $10 billion (reducing its outstanding debt or increasing its claims on the other sectors), and the foreign sector will have increased its net financial position by $20 billion (also reducing its outstanding debt or increasing its claims on the other sectors)."

http://neweconomicperspectives.org/2011/06/mmp-blog-2-basics-of-macro-accounting.html

Luis Enrique

Sometime I wonder whether this isn't one of the biggest questions in economics that is being widely ignored. Or at least not getting the prominence it should - there are bound to be some researchers who think about this.

We know that it would not make sense, from a welfare maximizing point of view, to borrow money from overseas to buy consumption goods from foreigners and in return have them buy up your domestic capital stock. Or at least it would only make sense if you had a very high discount rate and valued consumption today much more than tomorrow. But people taking the decision to borrowing money, and to buy cheaper goods from overseas (and people shutting down UK based production and moving it overseas) probably are all each just thinking about the short-run gains from these decisions.

Are we collectively doing something very stupid from a long-run perspective?

Doc at the Radar Station

Nobody seems to care about the trade deficit here in the US either. Look at recent history:
http://www.calculatedriskblog.com/2014/09/trade-deficit-decreased-in-july-to-405.html
This goes with the ridiculously low savings rate too:
http://www.calculatedriskblog.com/2008/12/savings-rate-starting-to-recover.html

acorn

Crikey! I haven't looked in on this site for some while. Today I find "Modern Money Theory" (MMT) all over it. "New Economic Perspectives" quoted and "3spoken". And that has got to be good.

reason

Luis Enrique,
yes. (Applies much more and for much longer to the US.)

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