i was just thinking and would like your inputs… if all these countries are in trade deficits which countries are experiencing the surpluses? or are there other factors involved…currency etc.
Asia and OPEC
Mathematically they should be. And the Capital Account balance would be the inverse.
Strange… I was thinking the same question a couple days ago at work. Excellent call with the OPEC and much of asia.
High energy prices, massive US consumption and artificially low currency values have helped Asia/OPEC run huge trade surpluses with the West. A large percentage of this surplus found its way back to the US capital account. Whats interesting is that investments from Asia/OPEC are closely related to both the real estate bubble and the massive growth in alternative investments. Sovereign wealth funds have very long investment horizons and disproportionately invested in hedge funds & PE. China bought a massive amount of US treasuries which helped depress interest rates and fuel an asset price bubble. The way all the threads in the global economy come together is really fascinating sometimes. If anyone’s interested, google “McKinsey: The New Power Brokers”, its a very well researched paper that explains all these interconnections at length.
Trade balances are supposed to be zero-sum, but I can’t help thinking that there could be leakage of some sort based on changing currency prices and the timing of payments and stuff. Normally trade statistics are computed over periods like months and quarters and years, and typically use some kind of average exchange rate. Is there some kind of accounting identity that forces trade flows to be zero sum, regardless of exchange rate changes and cash flow timings? (I feel I should know this, but I don’t) I do think it’s safe to say that - to a first approximation - it is a zero sum game. But when there are rapid exchange rate changes, maybe there is the potential for some kind of leakage.
I would think they are not zero sum because of money creation by central banks and due to changes in exchange rates, but in real term over the long term, they might be, not sure though.
I would think they are not zero sum because of money creation by central banks and due to changes in exchange rates, but in real term over the long term, they might be, not sure though.