The U.S. Current Account Deficit Once Again

Afternoon Tea Audio Podcasts:

The U.S. Current Account Deficit Once Again: June 6, 2006

Comments

[Alan]

Hey, you're a good speaker! (I didn't know because I only know the author through this blog.)

[steve herman]

Buffet famously bet against the dollar and regretted it. You have anything to say about the time function of that decline?

[anne]

Actually, the foreign currency holdings by Berkshire Hathaway have worked out rather nicely, no matter the short term losses. Notice how well by the way European stocks have performed as the dollar weakened, then strengthened, and had weakened again :)

[Nathan]

https://registration.ft.com/registration/barrier?referer=&location=http%3A//news.ft.com/cms/s/a73094d4-f3f8-11da-9dab-0000779e2340.html

"US companies have increased their share of the economic pie at a faster rate over the past five years than at any time since the second world war."

Hmmm...

[anne]

http://news.ft.com/cms/s/a73094d4-f3f8-11da-9dab-0000779e2340.html

June 4, 2006

US Groups Boost Share of Economic Pie
By Christopher Swann and Francesco Guerrera - Financial Times

US companies have increased their share of the economic pie at a faster rate over the past five years than at any time since the second world war.

Recent government figures show that profits from current production as a share of national income have risen from 7 per cent in mid-2001 to 12.2 per cent at the start of this year. This rate of growth is unprecedented since collection of these figures began in 1947.

Profits have climbed by 123 per cent over the same period, soaring from $714.5bn (€552.57bn, £378.89bn) to $1,595.4bn – also the fastest increase since records began. Other official data have shown that profit growth by manufacturing companies, often seen as one of the weakest sectors, has outstripped the rest of the economy. The figures suggest corporate America is enjoying one of its best periods despite more competition from low-cost countries and tougher corporate governance and disclosure rules.

Even during the boom of the late 1990s, companies only managed a 90 per cent increase in profits over a four and a half year period. Annual data on profits go back to 1929; there were faster rates of profit growth in the 1930s, as the US emerged from the great depression.

"Companies have had an extraordinary winning streak, that has lasted longer than most expected," said Nigel Gault, director of US economics at Global Insight, an economic consultancy.

But he said: "It is unlikely that this is sustainable for much longer."

The figures in the national accounts are the broadest measure of corporate profitability, measuring everything from Microsoft's performance to an accountant working out of his garage....

[anne]

Warren Buffett in late 1999, when arguing that stock prices made little sense, wrote that corporate profits were limited to about 7%; John Bogle agreed. I have watched the change and been startled, though the change is understandable and goes along with what we will increasingly find has been a concentration of income and wealth. Changes in profits and concentration have been implied in policy changes, fiscal and administrative, and are quite worrying.

[anne]

Interestingly for all the gain in profit, for all the gain in corporate saving, domestic investment has been remarkably subdued. Because price earning ratios were being adjusted down from ridiculous levels, there has been a minimal return for the S&P stock index since 2000. Oh, but returns to lead executives have been so so so....

[outsourced]

Ah,... the timeframe. The first post Brad deleted of mine was with respect to his prediction that there is a high probability the dollar would fall 30% over the next 10 years. I guess he didn't like it that I pointed out the obvious: no economic model is able to accurately predict the dollar that far out.

remo williams

[Matt]

Fafblog is back!

[theCoach]

If there is enough delusion in a market that a value is clearly unsustainable, I cannot see what forces would favor gradual rebalance -- People would hold on for as long as they can, then rush for the door, especially, with gatekeepers who can throw their less influential clients to the back of the line.

[christo]

Well, predict the amount or the time but not both. 10 years sounds like a generous amount of time for this to happen.

The Plaza Accord in the Volcker era:

Perhaps not surprisingly, not all the promises were kept (least of all the American one on deficit cutting), but even so the plan turned out to be spectacularly successful. By the end of 1987, the dollar had fallen by 54% against both the D-mark and the yen from its peak in February 1985. This sharp drop led to a new fear: of an uncontrolled dollar plunge. So in 1987 another big international plan, the Louvre Accord, was hatched to stabilise the dollar.

http://www.economist.com/research/Economics/alphabetic.cfm?LETTER=P

[Jim Harris]

Afternoon tea is every bit a good as morning coffee, it seems! Keep up the great work.

[David]

well, I can't seem to make (or even actually make) the podcasts work, audio or video, but Brad, I think you have the year of the Clinton quote on the .mac page off by a decade.

[robd]

I like the Afternoon Tea and Morning Coffee, but what about the evening Wine and Late Night Whisky?

[allenm]

Gold- Brad, gold and oil are already pricing in a dollar fall of 30%- in just a matter of the last six months. so one could assert the fall has occurred- other fiat currencies in relation to our fiat currency may not adequately reflect it, but gold does not lie in regard to the actual buying power of our currency reflected in those pesky inflation premiums....

[D]

"but gold does not lie in regard to the actual buying power of our currency"

That's true.... if you are buying gold. If you are buying anything else, gold is irrelevant.

Sigh.... gold bugs.

[lise]

D, that is a perfect response!