United States: Deficits, the other side

Monday, November 03, 2008

The conversations about the United States economy always carries a feeling of impending doom. This despite an economy which today generates US 50,000 per capita GDP. United States is an unbelievably rich country with net worth of about US 60 trillion and annual GDP of US 14 trillion +.

Yet the conversation is always about lack of savings, deficits and on and on...but to view something completely different here is an excerpted section from the BEA: on the United States business with the rest of the world (ROW) including payments on US Bonds.

($ billions) Income from ROW             Payments to ROW              Net

2001                   322.4                                 278.8                            43.6
2002                   305.7                                 275.0                            30.7
2003                   336.8                                 280.0                            56.8
2004                   437.5                                 361.4                            76.1
2005                   573.5                                 480.5                            93.0
2006                   725.4                                 647.1                            78.3
2007                   861.7                                 759.3                          102.4

USA has a Net international investment position of -$2.4 trillion...made up of $20 trillion of foreign investment in the US and $17.6 trillion of US investments in the Rest of the World.

On this negative $2.4 trillion, US managed to earn $102 billion in 2007....nice performance.  ROW earned 3.8% from US investments and US earned 4.9% on its investments in ROW!

Ronald Reagan created massive deficits in the early 80's in his historic challenge to the Soviet Union.  The crumbling of the Berlin wall and the resultant 'peace dividend' allowed Bill Clinton to drastically cut military spending and laid the foundation of huge budget surpluses.

George Bush has reversed Clinton's military cuts and posed a historic challenge to militant Islam...should this policy and resolve prove successful, expect a peace dividend that wipes out any sign of deficits in the United States.

While I am not a fan of US foreign policy, I have never questioned their resolve once they have charted and embarked on a course.

I fully expect a backlash on all those countries which have benefited from US largesse, and now question its 'capability and position in the world'.  Get ready for the Chinese economy to get crushed and the re-emergence of Japan.

Japan thought they won the peace with the United States...the lost decade and withering in the wilderness have been a tough lesson.

It seems others are making the same mistake...Live and Learn.

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