Re: Greenspan squawks on trade

[Eubulides <paraconsistent@xxxxxxxxxxx>]

Concurrent with AG on the virtues of accounting we also have this from
William Poole -at the St. Louis Fed- earlier this week:

"Via basic accounting, a country's capital account surplus is equal to its
current account deficit. For simplicity, let's view the current account
deficit as the trade deficit. A common mistake is to treat international
capital flows as though they are passively responding to what is happening
in the trade account. In fact, investors abroad buy U.S. assets not for
the purpose of financing the U.S. trade deficit but because they believe
these assets are sound investments, promising a good combination of safety
and return. On a personal level, every one here has the option of moving
funds abroad, for example through mutual funds that invest in foreign
stocks and bonds. Why is the net capital flow into rather than out of the
United States? The reason is that for most investors the United States is
the capital market of choice. There is no better place in the world to
invest.

In sum, the United States has created for itself a comparative advantage
in capital markets, and we should not be surprised that investors all over
the world come to buy the product. As investors exploit the opportunities
provided by U.S. financial markets, trade deficits can arise. Thus, my
view is that our current trade deficits are not a cause for alarm because
on the whole they reflect extremely positive forces driving the U.S.
capital account."
http://www.stlouisfed.org/news/speeches/2003/11_19_03.htm


So Robert Blecker and the rest of us just shouldn't worry
anymore............


Ian