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Brad Setser (almost) throws in the towel


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July 03, 2006

Brad Setser (almost) throws in the towel

Michael Mandel

In my ongoing debate with Brad Setser over dark matter, he comes close to conceding...for the moment:

Paging Michael Mandel. I give up … there isn’t that much to worry about. At least not judging from the 2005 NIIP data.

OK, I am not really ready to give up. But the 2005 net international investment position (NIIP) data sure didn't provide me much to work with.

and

....The net international investment position of the US just hasn’t deteriorated since the end of 2002, despite deficits of nearly $525b in 2003, $670b in 2004 and almost $800b in 2005. US net debt was around $2.3 trillion at the end of 2002. And it was around $2.55 trillion (valuing equity investment in the US and US equity investment abroad at market value) at the end of 2005.

Big deficit, sure. But the story that emerges is that the US is just borrowing against the rising value of its existing foreign investments abroad. Just like US households are borrowing against the rising value of their homes. Debt is only a concern if it isn’t backed by assets. External debt matched by rising external assets isn’t a worry.

and

If the data holds, I pretty much have to concede 2005 to the don't worry crowd.

Actually, I'm not as much in the don't worry crowd as Brad might think. I've written that there are a lot of potential bubbles out there in the global economy (see here), and we don't know which one is going to pop first.

My real conclusion: The intricacies of the global economy have now conclusively outrun the statistics. On the physical side, the flows of knowledge are not being picked up by the data. On the financial side, the growing role of derivatives may be making the whole debt/assets division increasingly outdated. It may be time for a big rethink of the whole statistical structure.

Note: 2005 number for net debt corrected at Brad's request.

04:05 PM

Trade

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One picture from the 2005 International Investment Position release (and one from the NIPA) from Econbrowser

Amid all the rejoicing over the improvement in the U.S. net international investment position (NIIP) despite the record current account deficit, one ratio was unremarked upon -- namely the ratio of U.S. Government securities held by non-resid... [Read More]

Tracked on July 10, 2006 01:45 PM

Mandel calls for new economic statistics from Newmark's Door

Michael Mandel (almost) claims victory in his dispute with Brad Setser about Dark Matter. Wherever one stands on that particular dispute, Wherever one stands on that particular dispute, [Read More]

Tracked on July 12, 2006 05:51 AM

Mandel calls for new economic statistics from Newmark's Door

Michael Mandel (almost) claims victory in his dispute with Brad Setser about Dark Matter. Wherever one stands on that particular dispute, Mandel's conclusion certainly seems correct:The intricacies of the global economy have now conclusively outrun the... [Read More]

Tracked on July 13, 2006 09:41 AM

'It may be time for a big rethink of the whole statistical structure.'

Exactly Michael ...

I have actually tended to disagree with you concerning the theory of Dark Matter especially because I believe the original source (i.e. the Sturzenegger and Hausmann paper) to be wrong in many of its assumptions. However, the point about statistics of current account flows in the 'knowledge economy' is very valid and thus important to take away from the Sturzenegger and Hausmann paper whereas the idea that the US suddenly has run an actual surplus over the last 25 years is not.

Posted by: claus vistesen at July 4, 2006 09:38 AM

Michael -- one small correction. In my initial post, i used the end 04 NIIP at market value for the end of 2005 number. The correct end 05 number is $2.55 trillion, not 2.45 trillion.

see: http://www.bea.gov/bea/newsrelarchive/2006/intinv05.pdf

my apologies. I have corrected this in my post and it would be great if it could be corrected here as well. It doesn't change the overall story.

Posted by: brad setser at July 5, 2006 11:23 AM

Your point about a big rethink of the statistical structure may be correct, but how would you propose we implement such a system? The new structure would have to incorporate "dark matter" in order for a better uptake of knowledge. Any ideas on how to pick up the flows of knowledge in the data?

Posted by: Elliot at July 5, 2006 12:37 PM

Brad--done

Posted by: Mike Mandel at July 5, 2006 03:40 PM

Are you related to Toronto Sun columnist Ms. Michele Mandel?

http://www.torontosun.com/News/Columnists/Mandel_Michele/

Posted by: Bill Cristal at July 11, 2006 05:05 PM

-chirp- -chirp- .... crickets.

It's awfully quiet here... maybe... a little TOO quiet....

Posted by: Brandon W at July 13, 2006 09:51 AM

never quiet in my house

Posted by: Mike Mandel at August 7, 2006 03:15 PM


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