This article implies "dark matter" accounts for the discrepancies in the numbers and means the US is not a debtor nation.
http://www.economist.com/finance/displaystory.cfm?story_id=5408129However, seems there are quite a few critics of Hausmann and Sturzenegger
http://www.tpmcafe.com/story/2006/1/2/21957/55873 December 16, 2005
Goldman Sachs Research
US Economics Analyst
Issue No: 05/50
"Dark Matter" in US International Transactions?
* Recently, Ricardo Hausmann and Federico Sturzenegger argued that the persistence of positive net investment income is prima facie evidence that the United States is not a net debtor. They claim that the balance of payments accounts overlook massive US exports of "dark matter"--in the form of knowledge, global liquidity, and insurance.
* We disagree, especially with their use of a constant P/E multiple to convert net income to net asset values, but they rightly point out that returns on US direct investment have consistently outpaced those on foreign counterparts. In recent years, lower interest rates and a falling dollar have helped as well, but with both currently moving the other way, the net income balance should deteriorate over the next year or two.
...
December 8, 2005
RGE Monitor
Emerging market bubble watch - and a word or two on dark matter
By Brad Setser
Setser is Head of Global Research and Senior Economist at Roubini Global Economics and a research associate at the Global Economic Governance Programme at University College, Oxford.
Four comments in response:
* The amount of "dark matter" on the US balance sheet is going to shrink rather rapidly. The US income balance went into deficit in the second quarter of 2005, and the income deficit (i.e. payments on US debts in excess of what the US earns on its external assets) may well reach $75b or so next year. Interest on the $800 billion in new debt the US took out in 2005 is part of the reason but also remember ...
* US interest rates were very, very, very low in 2002, 2003 and 2004 - unusually so. That had a thing or two to do with the positive US income balance during those years. From 2001 to 2003, the interest rate the US had to pay on its bank borrowing from abroad and the US interest rate that the US government had to pay on Treasuries held abroad fell substantially. That really helped to offset the rise in the US (gross) external debt associated with ongoing current account deficits. It won't help much longer. Interest rate differentials are no longer in the United States favor. Look for the US external interest bill to rise substantially in 2006 on the back of the Fed's tightening cycle.
* The same dynamics that have helped the US could also really hurt the US if they ever operated in reverse. US gross debt far exceeds US net debt. Gross US external liabilities are around 100% of US GDP. Big falls in the average cost of servicing all those liabilities have played a big role keeping net US payments down recently. If the US ever lost its ability to borrow from abroad at a very low rate (over the past few years, a falling rate), the overall impact on the US income position could be quite large. The interest bill on the United States gross debt could potentially go up by a lot. There is a big difference between say a 4% interest rate on gross debt of a 100% of GDP and a 6 or 7% interest rate on that much debt. At some point, a potentially very negative dynamic could set in. That is what worries me.
* Finally, generating new dark matter requires investing abroad, and, going forward, it is going to be hard for the US to both borrow to invest abroad and borrow to import so much more than the US exports. After all, judging from the reported return on foreign investment in the US, investing in the US is NOT the way to make a ton of money. Better to invest in Europe and try to find the secrets that generate all that dark matter for the US.
...
December 14, 2005 RGE Monitor
October Trade Data: Better try to find some more dark matter
By Brad Setser
It is pretty obvious that the US October trade deficit was quite large, even by recent American standards. Taking into account expected valuation changes (US assets in Europe are currently on the books at 1.35 dollars/ euro, but that will change when the end 2005 data is released) as well as the size of the US current account deficit, I suspect the US net external debt will approach $4 trillion/ 30% of US GDP by the end of this year - a bit faster than Bank of America seems to expect.
Large deficits are to be expected if a country produces less (at least less refined petroleum), exports less (I would assume that grain exports through the Mississippi are a bit below average) an still consumes more.
To me, the most interesting feature of the trade data is that non-petroleum imports are trending up once again. Think $144 billion in January, only $144-145 billion in August, $148 billion in September and $152.6 billion in October. Conversely, exports seem to have stalled, more or less, at around $106-$108 billion dollars. At a minimum, the pace of export growth seems to be slowing. This reverses the pattern of earlier this year, when monthly exports were heading up and monthly non-petroleum imports had stalled.
...
Call it the beginning of a trend. Or a step adjustment. But one way or another, the inventory correction that held down US imports for much of the first part of this year seems over. If you look at the real import and real export data in the BEA's report, they too seem to suggest a reversal. Real goods imports are rising again. Real goods exports seem to have stalled. (see p. 15 of the BEA release)
And I would not be surprised if the boost to US exports from a resurgent Boeing and the weak (end 2004) dollar is petering out. Don't discount the civilian aircraft sector - combine planes, parts and engines, and exports of aircraft and components are up by $8 billion so far this year. I am not sure a similar increase would be in the cards for next year even if the dollar has stayed at its end 2004 lows.
...
December 16, 2005 RGE Monitor
Is the world ready to finance a $1 trillion US current account deficit?
By Brad Setser
Judging from the capital inflow into the US in October, I guess the answer is yes. And I suspect the US may well give the world a chance to add $ 1 trillion to its dollar portfolio next year.
That may be a strange thing to argue after the US current account deficit (somewhat unexpectedly) fell in the third quarter. But the fall reflected a couple of one offs (Katrina related transfer payments, and some more dark matter) that I don't suspect will be sustained.
The third quarter current account deficit was only $195.8 billion, or $782.4 billion annualized. But the $196 b deficit reflects a $9 billion improvement in the US "transfers" deficit as European reinsurers made big payments to US insurers after Katrina and Rita. That alone cut the overall deficit by $9 billion. Add the $9 billion back in, and the overall deficit in the third quarter was about $205 billion, or $820 billion annualized.
...
Payments on US government debt held abroad rose by $2 billion, and other "private payments" rose by $7 billion. That is what one would expect. US policy rates are rising. US external debt is rising. That generally is a bad combination. But the US earned an extra $2.15 billion on its foreign direct investment abroad, and foreigners earned $4.1 billion less on their direct investment in the US. (Yep, the US continues to offer a raw deal to foreign companies operating in the US, at least judging from their reported income). Combine the two, and you get a $6.25 b fall in (net) income payments. Other US private receipts also increased by $5.6b, for reasons that elude me (interest rates outside the US were pretty low). This increase in US earnings abroad, along with the fall in payments on US FDI, allowed the income balance to improve in the third quarter.
I don't think that will last. If you take away the surge in FDI-related dark matter, the underling income balance deteriorated significantly.
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore