Friday, March 11, 2005

Remember Argentina: The US trade gap and the charity of strangers

BBC NEWS | Business | US trade gap expands to $58.4bn
...The trade deficit makes up much of the red ink in the US's current account [deficit], the measure of the divergence between the US's incomings and outgoings.

Both the current account and budget deficits - the latter currently close to $500bn - are funded largely by the purchase of dollar-denominated debt by foreign central banks.

The inflow of about $2bn a day, estimated by some economists to be about 80% of the world's excess savings, also keeps the dollar from sliding further and faster.
We Americans keep spending, you foreigners keep sending us money so we can spend. What a deal! I think I'll buy another Mac. Or maybe a Mercedes.

Meanwhile Manhattan, previously sold to the Japanese and the Saudis, is now being sold to the Italians. Somehow I suspect New Yorkers came ahead on each sale.

We Yanks are partying like the boom and bust never happened. We don't pay taxes, and foreigners pay for our government's services and invasions. We buy Armani and foreigners keep our credit card rates low. Those bogeyman bond traders who are supposed to threaten irresponsible nations just wink at us. Greenspan keeps the taps runnin' and foreign money flows out. Yeah, our homes cost bazillions now, but that's not inflation, that's wealth. Right?

Ok, I'm no economist. Modern economics reminds me of modern physics -- both have far outstripped my dwindling intellectual resources. The universe is an infinite pile of infinitely expanding grapefruits, and the flow of capital between the US, China and India means we can party forever.

All the same, I'd be interested in an investment strategy that allowed me to make a goodly bet that the house of cards collapses before 2010. I'm willing to lose the bet (but not all my assets!) if the game goes on. Anyone know a legitimate place that offers such wagers to non-billionaires? (There's a name for this kind of complex financial instrument but I need more coffee to remember it. [1])

[1] Google came to my rescue. The search on "complex financial instrument" provided a nice list from DeloitteLearning (course costs money and is IE only!). The term is "Derivative and it takes one deep into the bowels of finance -- a field where mathematicians have gone to play. So all I need is a packaged derivative that won't wipe me out if it goes south, but lets me bet that the wheels come off the train.

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