Re: Greenspan squawks on trade

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

If Poole were correct, market forces would drive interest rates on US
paper down low enough so that people would be indifferent between US and
other sources.  But, Poole is talking ideology, not economics.

On Sat, Nov 22, 2003 at 10:58:14AM -0800, Eubulides wrote:
> 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

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx