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More on trade deficits

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May 11, 2005

More on trade deficits

Michael Mandel

David Altig has a nice piece about the sustainability of the trade deficit. He fails to note, however, that the deficits are sustainable as long as U.S. wealth, net of debts to foreigners, continues to grow--which it has been doing (take a look at my post from a couple of days ago).

That is, the real constraint on the U.S. is whether we are drawing down our wealth at home, not whether we building up too much foreign debt.

05:59 PM


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Per your earlier post, you are combining two different eras. Over the last 5 years, real per capita wealth has declined. Yes - fro 1/1995 to 12/1999, it rose a lot. Per the FED Letter David refers to, see Brad Setser's comments and my post over at Angrybear.

Posted by: pgl at May 11, 2005 06:33 PM

I have real problems with the entire concept of unrealized wealth as a measure of well being. A higher stock market and/or a higher home price can increases your feeling about your wealth and impact your behavior. But it does not necessarily measure the ammount of wealth you can actually use. Using stock market values or home values assumes that your attempt to realize or sell that wealth will not impact the value of that wealth. Most of the time that is true, but it is not true often enought to make the assumption that unrealized capital gains are a good measure of wealth questionable.

Are you sure enough of your unrealized stock market gains to pay taxes on those unrealized gains now. Alternative, can you get a bank to lend you 100% of your unrealized gains? If not, I would suggest you are overestimating the value of those gains.

Posted by: spencer at May 14, 2005 01:45 PM

The fundamental problems with the claim that household wealth has risen are generally two folds. First, they do not clearly disclose their methodolgoy. Second, given they do, the methodology is often flawed as Spencer pointed out.

Posted by: Kanda at May 18, 2005 11:55 AM

what was the lst 5 years trade deficit & balence of payment of india give year wise urgent

Posted by: balagouda at October 14, 2005 10:06 AM

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