This from the folks at Everbank in their Daily Pfennig newsletter;
The US needs to attract $2.1 billion a day to fund the gap and keep the value of the dollar steady. 2.1 billion dollars a day! That, my friends, is a lot of foreign capital!
This came in the context of wondering if deficits matter and those folks that say it deficits do not matter. I have to think deficits don't matter has to be wrong. I am not smart enough to know when they start to matter.
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5 comments:
Hi Roger,
I use to be in the camp of and still are that most deficits are not bad and may be needed in the short run.
But this article Global Current Account Imbalances: Hard Landing or Soft Landing has some good information and not too technical.
At end-2003, the net external indebtedness of the United States (i.e. net claims of non-residents) amounted to over 250 percent of exports of goods ands services, and about 25 percent of GDP.
This is similar to the levels that LDC's had in their debt crisis. Of course the USA has a much more dynamic market and is more easily able to transfer capital/human capital around. And that many countries are holding excess reserves of dollars does not help also.
The problem with everbank is that they are very selective. They pushed the New Zealand dollar without mentioming the huge (bigger than US) deficits in that economy. Their goal is to get people into their accounts. They avoid giving the compllexity of useful information.
I personally think deficits matter and the dollar is at risk, but everbank statements have all the flaws of "sell side" advice. Indeed reading some of their missives they are borderline kooks.
Their bank is adequete, not really well run, but with a unique product. But for forex advice there are a number of much better sources on the web.
presumably the New Zealand current a/c deficit is "bigger than the US" as a % of GDP rather than in dollar terms! (this matters; there is a big issue with regard to the US that its financing has to take up a material proportion of global savings, but not so much with NZ).
Otoh, I tend toward Roger's view on this; the deficit will be useful for explaining the crash retrospectively when and if it happens, but for the meantime it probably makes more sense ot look for things that have some predictive value.
I remember reading Warren Buffet's article about the trade deficit. It's scary! I think the real question is how to deal with it as investors. I heard Buffet has a large foreign currency position. I wonder if that still holds.
thanks for all the comments and info.
Buffet made some press in the last couple of months when he reduced his short dollar position. I do not know by how much but it was reduced.
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