Edward, this is a good article and I agree with Pettis on his prescriptions, although it seems doubtful Congress would allow any of those things to happen, which means pain for small business and their employees. I've got a few questions about this one:
I'm not particularly fluent in trade mechanics. How does foreign aid reduce the CAD? If foreign trade sends dollars for goods and foreign aid sends dollars abroad for no goods, how would that reduce the CAD?
Furhermore, Pettis says, "One possible scenario is that the U.S. current account deficit could contract, but...it is more likely that an incoming deluge of excess foreign savings will force the U.S. current account deficit to expand even more." Wouldn't an excess of foreign savings traded for dollars and used to buy US assets decrease the CAD?
Lastly, aside from this article, I'm wondering something else given the explosion in the corporate debt markets since the March lows: Do you know if all new corporate debt is new money, i.e, a loan which creates a deposit? Or is the newly issued debt traded from already existing dollars and reduces the stock of money market funds? Or is it a combination of the two? If a combination, what is the approximate balance?
Thanks. Hopefully you will have time to respond if possible.
On the corporate debt issue, I don't have an answer because I don't know what balance sheets look like relative to a few months ago. But to the degree they are simply taking on new debt to have cash on the balance sheet, it is new money even though it doesn't junk their balance sheet since they aren't using that money
What Pettis is saying is that foreigners want to accumulate the US as the world's main reserve currency in times of crisis. So that means we will have a vastly increased surge of dollar liquidity needs, leading to an expanded US capital account surplus. The capital account wags the current account dog. So, that capital account surplus means a current account deficit unless we can find a way as a nation to use capital abroad for, say, foreign aid.
Hi Edward, Michael Pettis was on the Hidden Forces podcast last week and it was excellent.
My question is what if government spending increased to incentivize businesses to bring their supply chains back to the US? Wouldn’t that have the double beneficial effect of increasing government spending and business investment ?
Edward, this is a good article and I agree with Pettis on his prescriptions, although it seems doubtful Congress would allow any of those things to happen, which means pain for small business and their employees. I've got a few questions about this one:
I'm not particularly fluent in trade mechanics. How does foreign aid reduce the CAD? If foreign trade sends dollars for goods and foreign aid sends dollars abroad for no goods, how would that reduce the CAD?
Furhermore, Pettis says, "One possible scenario is that the U.S. current account deficit could contract, but...it is more likely that an incoming deluge of excess foreign savings will force the U.S. current account deficit to expand even more." Wouldn't an excess of foreign savings traded for dollars and used to buy US assets decrease the CAD?
Lastly, aside from this article, I'm wondering something else given the explosion in the corporate debt markets since the March lows: Do you know if all new corporate debt is new money, i.e, a loan which creates a deposit? Or is the newly issued debt traded from already existing dollars and reduces the stock of money market funds? Or is it a combination of the two? If a combination, what is the approximate balance?
Thanks. Hopefully you will have time to respond if possible.
On the corporate debt issue, I don't have an answer because I don't know what balance sheets look like relative to a few months ago. But to the degree they are simply taking on new debt to have cash on the balance sheet, it is new money even though it doesn't junk their balance sheet since they aren't using that money
What Pettis is saying is that foreigners want to accumulate the US as the world's main reserve currency in times of crisis. So that means we will have a vastly increased surge of dollar liquidity needs, leading to an expanded US capital account surplus. The capital account wags the current account dog. So, that capital account surplus means a current account deficit unless we can find a way as a nation to use capital abroad for, say, foreign aid.
Hi Edward, Michael Pettis was on the Hidden Forces podcast last week and it was excellent.
My question is what if government spending increased to incentivize businesses to bring their supply chains back to the US? Wouldn’t that have the double beneficial effect of increasing government spending and business investment ?
Thanks !