Vanishing Dark Matter? Does it Matter?
From Reuters Vanishing Dark Matter: The so-called "dark matter" that some economists believe is holding together America's external accounts -- and warding off a painful adjustment of global financial imbalances is disappearing fast, according to new economic studies.
Two Harvard economists had suggested in a November study that America's ability to earn more income on overseas assets than it pays to foreigners on their U.S. assets shows the United States to be a net creditor -- even though the official balance of payments data suggest it is the world's biggest debtor.
But recent studies by the Federal Reserve Bank of New York, Deutsche Bank, and Goldman Sachs dispute that theory and warn that the increasing weight of America's indebtedness to the rest of the world will soon put a huge strain on the current account deficit.
The potential consequences include rising U.S. interest rates, a sharp decline in consumer spending or a fall in the dollar. Or possibly all three.
A long version by Hausmann and Sturzenegger, a shorter version, a Financial Times Op-Ed by the authors, a CBO Congressional Budget Office take, Mandel's opinion and cover story at Business Week, and Martin Wolf's Financial Times Forum.
From The Economist "there remains a big gap in reported profitability between American FDI and FDI in America that risk alone cannot explain. Perhaps taxes can.
To dodge the revenuemen, a multinational company might report artificially high profits in a low-tax jurisdiction abroad. This tax arbitrage, Mr Lane points out, can shift money from one line of the current account to another. But it does not change the size of the deficit one jot."
Stirring the pot nicely Brad DeLong's Semi Daily Journal, : "Do I believe in Hausmann and Sturzenegger's "Dark Matter"? No. This post is in the interest of explicating an interesting line of argument only.
I believe what Rudi Dornbusch said: that when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable, that is the time to start running for the hills, because the crash is near."
From Brad Setser at Roubini Global Economics in a nice debate with Mandel of Business Week: "Why should the rest of the world lend to the US at 5% so it can get super-returns rather than try to make the kinds of investments that US firms make offshore in order to earn these super-returns?"
From Kash at Angry Bear: "the net income from abroad accounting that Hausmann and Sturzenegger rely upon for their valuation exercise (could be) distorted".
The Nattering One thinks that the "dark matter" is there. But, the old "three card monty" through accounting chicanery to minimize tax liabilities causes distortion in the numbers, which makes its mass and effect difficult to accurately measure.
We leave you with this to ponder: The Chinese who invented creative book keeping, keep four sets of books, one for external auditors, one for the tax man, one for internal purposes and one for their wives. Let the debate rage on.
Two Harvard economists had suggested in a November study that America's ability to earn more income on overseas assets than it pays to foreigners on their U.S. assets shows the United States to be a net creditor -- even though the official balance of payments data suggest it is the world's biggest debtor.
But recent studies by the Federal Reserve Bank of New York, Deutsche Bank, and Goldman Sachs dispute that theory and warn that the increasing weight of America's indebtedness to the rest of the world will soon put a huge strain on the current account deficit.
The potential consequences include rising U.S. interest rates, a sharp decline in consumer spending or a fall in the dollar. Or possibly all three.
A long version by Hausmann and Sturzenegger, a shorter version, a Financial Times Op-Ed by the authors, a CBO Congressional Budget Office take, Mandel's opinion and cover story at Business Week, and Martin Wolf's Financial Times Forum.
From The Economist "there remains a big gap in reported profitability between American FDI and FDI in America that risk alone cannot explain. Perhaps taxes can.
To dodge the revenuemen, a multinational company might report artificially high profits in a low-tax jurisdiction abroad. This tax arbitrage, Mr Lane points out, can shift money from one line of the current account to another. But it does not change the size of the deficit one jot."
Stirring the pot nicely Brad DeLong's Semi Daily Journal, : "Do I believe in Hausmann and Sturzenegger's "Dark Matter"? No. This post is in the interest of explicating an interesting line of argument only.
I believe what Rudi Dornbusch said: that when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable, that is the time to start running for the hills, because the crash is near."
From Brad Setser at Roubini Global Economics in a nice debate with Mandel of Business Week: "Why should the rest of the world lend to the US at 5% so it can get super-returns rather than try to make the kinds of investments that US firms make offshore in order to earn these super-returns?"
From Kash at Angry Bear: "the net income from abroad accounting that Hausmann and Sturzenegger rely upon for their valuation exercise (could be) distorted".
The Nattering One thinks that the "dark matter" is there. But, the old "three card monty" through accounting chicanery to minimize tax liabilities causes distortion in the numbers, which makes its mass and effect difficult to accurately measure.
We leave you with this to ponder: The Chinese who invented creative book keeping, keep four sets of books, one for external auditors, one for the tax man, one for internal purposes and one for their wives. Let the debate rage on.
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