Is the US GDP an accurate representation of the country's economic health?

[GENIERE]

The US has a national debt proportionally similar to that of France or Germany and about 50% of Japan’s. Some of the US debt is owed to its corporations and citizens while some of it is owed to foreign entities. China has a large trade surplus with the US and increasingly owns a goodly share of the US debt.

China, by virtue of its low paid workforce, exports goods and services to the US that enhance the US citizen's standard of living. The US pays for the low priced products with the US dollar. The Chinese can distribute, save, or invest the dollars as they see fit.

Some posters, the US haters such as TSM find much enjoyment in the fact that China owns a large amount of US debt. Why is the US debt seen as a negative for the US and a positive for China?

In a high school economic class we might be taught that owing money is a bad thing. Is that really true?
.

 

[The Smoking Man]

The US has a national debt proportionally similar to that of France or Germany and about 50% of Japan’s. Some of the US debt is owed to its corporations and citizens while some of it is owed to foreign entities. China has a large trade surplus with the US and increasingly owns a goodly share of the US debt.
China, by virtue of its low paid workforce, exports goods and services to the US that enhance the US citizen's standard of living. The US pays for the low priced products with the US dollar. The Chinese can distribute, save, or invest the dollars as they see fit.
Some posters, the US haters such as TSM find much enjoyment in the fact that China owns a large amount of US debt. Why is the US debt seen as a negative for the US and a positive for China?
In a high school economic class we might be taught that owing money is a bad thing. Is that really true?
.

Once you graduate however, you begin to discover that macro-economics states that an economy based on credit with a mounting deficit and little to back the economy means you are becoming a welfare state with a few rich bankers at the top.

When the crash comes and you discover that like Halliburton they have salted thiir cash offshore, they bail and head for switzerland.

 

[Pengwuino]

I wonder what professor would have told you "When the crash comes and you discover that like Halliburton they have salted thiir cash offshore, they bail and head for switzerland."

Or did you get it off a blogs?

 

[Anttech]

I wonder what professor would have told you "When the crash comes and you discover that like Halliburton they have salted thiir cash offshore, they bail and head for switzerland."

Or did you get it off a blogs?

not everyone here is a student

The US has a national debt proportionally similar to that of France or Germany and about 50% of Japan’s. Some of the US debt is owed to its corporations and citizens while some of it is owed to foreign entities

Source please? since you are continuing to post spin and smoking mirrors (and it seems personal attacks now) I would like to see where you pulled your figures from...

 

[Pengwuino]

not everyone here is a student

Well then I guess he learned economics from a cartoon. No self-respecting economist would say a country is run by "a few rich bankers" or make that childish halliburton joke. Also, there's the baseless assumption that the US economy has nothing behind it.

Source please? since you are continuing to post spin and smoking mirrors (and it seems personal attacks now) I would like to see where you pulled your figures from...

I can tell you for a fact that vs. GDP, the figures are wrong. I don't see what scale you can use where the US debt is lower then Japan or Germany or France. They are similar... roughly 10% higher then france and germany... but definitely not lower. Check the CIA World Factbook.

 

[Polly]

I would have laughed, if it were not so sad.

 

[The Smoking Man]

Well then I guess he learned economics from a cartoon. No self-respecting economist would say a country is run by "a few rich bankers" or make that childish halliburton joke. Also, there's the baseless assumption that the US economy has nothing behind it.

Penguine, maybe you are unaware but in the last couple of years the 'dollar standard' has been undermined.

Most nations have divested and purchased 20%+ of their treasury holdings into Euros.

In late January/early February of last year, South Korea published a poorly worded statement telling the world they were selling dollars and they started a world wide run on the currency. They had to publ9ish a retraction within 12 hours.

I am certainly glad YOU think you are backed by something because the rest of the world has its doubts.

 

[russ_watters]

Please excuse the interruption, I'm just passing through, but I thought you guys might be interested in some facts:

It is true that, at an estimated 1.9% of GDP, America's total budget deficit this year is the smallest among the world's big seven economies, and well below the European Union's average of 4.9% of GDP. America's ratio of net public-sector debt to GDP has risen from 27% in 1985 to 38% this year; over the same period, Europe's soared from 38% to 60%. Moreover, the United States has the lowest levels of both government spending and taxation of any rich industrial economy (spending is 33% of GDP, against Europe's 50%).

http://www.lightparty.com/Economic/RedInk.html

Country -- Debt as a Pct of GDP -- Avg. Growth Rate of Real GDP, 1948-88
Italy 103.1... 4.4%
Canada 75.6... 4.5
Japan 63.2.... 7.1
United States 56.2... 3.3
Germany 47.6... 5.0
France 47.5... 4.1
United Kingdom 36.0... 2.6

http://www.sumeria.net/politics/debt.html

China's debt: http://www.iwep.org.cn/wec/English/articles/2001_01/jiakang.htm

There may have been some mixing of debt vs deficit there, guys.

Proceed...

 

[Mercator]

Please excuse the interruption, I'm just passing through, but I thought you guys might be interested in some facts: http://www.lightparty.com/Economic/RedInk.html
http://www.sumeria.net/politics/debt.html
China's debt: http://www.iwep.org.cn/wec/English/articles/2001_01/jiakang.htm
There may have been some mixing of debt vs deficit there, guys.
Proceed...

You're using 1991 figures? What kind of joke is that?

 

[Mercator]

I wonder what professor would have told you "When the crash comes and you discover that like Halliburton they have salted thiir cash offshore, they bail and head for switzerland."

Or did you get it off a blogs?

Marc Rich anyone? So sorry that reality interferes with your theoretic economic jargon.

 

[The Smoking Man]

You're using 1991 figures? What kind of joke is that?

Yeah and covering the years 1944 to 1988!?

Maybe he should just keep on PASSING through and not bother to stop next time.

 

[Mercator]

Any American ever heard about the Maastricht norm? All EU countries are required to keep deficit below 3 %

 

[GENIERE]

Per the CIA World fact book (2004)

Dept per GDP of some selected countries

Japan - - - 164.3
Italy - - - - 105.0
Belgium - - 96.2
France - - - 67.7
Germany - -65.8
USA - - - - - 65.0

Statement made in original post is correct.

TMS in a reply stated “Most nations have divested and purchased 20%+ of their treasury holdings into Euros.”

The statement may or not be factual, but it doesn’t matter, it implies US dollars were sold. Who was the purchaser? Since there was a purchaser, there must be an active market vying for dollars. For many months, the Euro decreased in value relative to the Dollar. Did the countries selling the dollar do well for their citizens?


...

 

[GENIERE]

Any American ever heard about the Maastricht norm? All EU countries are required to keep deficit below 3 %

Apparently that doesn't apply to France and Germany.

 

[The Smoking Man]

Per the CIA World fact book (2004)
Dept per GDP of some selected countries
Japan - - - 164.3
Italy - - - - 105.0
Belgium - - 96.2
France - - - 67.7
Germany - -65.8
USA - - - - - 65.0
Statement made in original post is correct.
TMS in a reply stated “Most nations have divested and purchased 20%+ of their treasury holdings into Euros.”
The statement may or not be factual, but it doesn’t matter, it implies US dollars were sold. Who was the purchaser? Since there was a purchaser, there must be an active market vying for dollars. For many months, the Euro decreased in value relative to the Dollar. Did the countries selling the dollar do well for their citizens?
...

Still using your high school economics classes, eh?

Who was the purchaser? Why, the USA of course. Doh!

Oh, and what is a 'dept'? You obviously have cut and pasted something and given no reference for it. If they are writing the word as 'dept' and not 'debt' you must be really reaching.

And what is a 'dept per GDP' anyway while we're at it?

Are these percentages, dollars, euros, donuts ... what?

Maybe you'd letter let the grown-ups talk for a while.

 

[GENIERE]

...Who was the purchaser? Why, the USA of course. Doh!

It is a possibility that the US is buying those dollars but not likely as it would have been highly inflationary at the `20%’ figure you stated. Debt reduction is not a budgeted item; if we are buying dollars it is at a very low rate. We are experiencing only mild inflationary pressure at the moment, that pressure is largely a result of the high price of oil, not an increase in the price of imports from China.

Debt reduction has never been the primary concern to a neo-con economic policy. Historically the worth of the Dollar has never correlated with the national debt or its rate of growth.

Debt v. GDP is a widely accepted yardstick for debt comparison.

The market demand for a Dollar is slightly greater than the demand for a Euro over recent months.

Have you a good argument as to why the US debt is a bad thing for the US. You have not yet presented one.

.

 

[The Smoking Man]

...Who was the purchaser? Why, the USA of course. Doh!

It is a possibility that the US is buying those dollars but not likely as it would have been highly inflationary at the `20%’ figure you stated.

Oh, my god you are actually being serious!

You don't know that to mitigate the damage done to a currency during a run is for the country in question to buy as much of their own currency off the markets as they can to prevent it devaluing?

You must be at your school as a Physics Major right?

This is not relative to the 20% divestment of the USD which has been a relatively slow process over the last few years.

Now, while credit in and of itself is not a bad thing, (He who owes the most owns the bank) ther must be something backing the loans other than weapons keeping out the bill collectors.

Each set of manufacturing jobs (Equity building) replaced by service jobs (non-equity) shows on the books as revenue however there is ... as the very model describes, no equity generated.

In this case it's like paying the interest on the loan without actually paying off the equity itself. Other currencies gain aginst your currency since they have the appropriate backing while yours does not.

If the citizens of the same country are also using this currency to finance the purchases of houses etc. and they begin to default (as has been the case for thousands of owrkers losing high paying jobs to India and China not to mention Mexico) banks become too property heavy in a depressed market with again ... no equity build and operate at a loss.

Equity ... that is what backs a currency from products to property.

Hence the reason the rest of the world has been divesting.

 

[GENIERE]

…You must be at your school as a Physics Major right?

I do wish that were true, but if memory serves, my last physics course would have been taken in1961+/-.

…Hence the reason the rest of the world has been divesting.

Correct if stated “the world is not investing in the US over the last several years at the high historical rates.”

China is continuing to buy US T-notes despite its non-parity (Yuan v. Dollar) policy.

If we use the value of the Euro as a reference, the Dollar has increased in value since Jan. ’05. The value of the Yuan is supposedly maintained at 3% parity with the Dollar but in practice its value has closely tracked the Dollar. China, other nations, and private entities continue to invest in and stabilize the Dollar’s value v. the Euro and Yuan by buying Dollars. Capital flow into the US is still greater than outflow.

http://money.cnn.com/2005/10/18/news/economy/inflows.reut/
October 18, 2005: 10:42 AM EDT - WASHINGTON (Reuters) – “Net flows of capital into U.S. assets swelled to $91.3 billion in August, well above analyst expectations and the largest inflow since $92.1 billion seen in April 2004, a government report showed on Tuesday…The figure was more than enough to cover the U.S. trade deficit, which was $59 billion in that month, and topped …sending the euro to session lows around $1.1919 from around $1.1938 shortly before the report was released…”

The effect of above on the Chinese internal economy is an inflationary one while tending to stabilize prices in the US.

You have not yet addressed the question in my OP.


...

 

[edward]

GDP relies heavily on personal consumption, The problem is that the cost of personal consumption is outpacing personal spendable income. We are buying on credit giving the GDP a boost, but consumer debt is not factored into the equation. In essence we cannot keep up the present rate of personel consumption which has made the the GDP look good in recent years.

personal consumption is the primary driver of the U.S. economy. The fact is that personal consumption in 2004 accounted for more than 70% of total GDP. Over the past couple of decades personal consumption has steadily grown in its portion of the U.S. economy. In 1981 it represented about 62% of GDP. Why is personal consumption making up so much more of the U.S. economy than ever before? Simple, Americans are spending almost all of their income each year and saving almost nothing

http://www.financialsense.com/fsu/editorials/charting/2005/0218.html

 

[The Smoking Man]

GDP relies heavily on personal consumption, The problem is that the cost of personal consumption is outpacing personal spendable income. We are buying on credit giving the GDP a boost, but consumer debt is not factored into the equation. In essence we cannot keep up the present rate of personel consumption which has made the the GDP look good in recent years.
http://www.financialsense.com/fsu/editorials/charting/2005/0218.html

Forget it, edward.

She has not understood yet the effects of a credit economy.

She doesn't understand that the flawed view of economy as generated by the USA is actually selling the USA to the people investing in the USA.

That investment is actually a loan with no way to repay it.

It is said that if the UAE and Saudi haul their cash out of the US banks ... not the economy ... just the banks ... It can start off an economic collapse of the USA.

Additional investment is actually in LAND not manufacturing.

And now ... when companies bid on the Supposed free market for the purchase of even 'trivial' companies the Senate is stepping into prevent it.

 

[GENIERE]

…GDP relies heavily on personal consumption, The problem is that the cost of personal consumption is outpacing personal spendable income. We are buying on credit giving the GDP a boost, but consumer debt is not factored into the equation…

Americans consume at a higher rate than most other countries and save at a lower rate. We consumed our way through Democratic and Republican administrations; before the Clinton Administration, during the Clinton Administration, and after the Clinton Administration. Perhaps we are not storing our Dollars in a mattress or giving it to a bank to grow at a snails pace, but we are investing in private business at an ever increasing rate.

Of course an economy cannot expand without a growth in consumption. The two are haplessly entwined.

… In essence we cannot keep up the present rate of personel consumption which has made the the GDP look good in recent years…

Are you offering that as an opinion or as a fact? Why can’t we “keep up the present rate of personel consumption”? What dire consequences await us?

 

[GENIERE]

Forget it, edward.
She has not understood yet the effects of a credit economy.
She doesn't understand that the flawed view of economy as generated by the USA is actually selling the USA to the people investing in the USA.
That investment is actually a loan with no way to repay it.
It is said that if the UAE and Saudi haul their cash out of the US banks ... not the economy ... just the banks ... It can start off an economic collapse of the USA.
Additional investment is actually in LAND not manufacturing.
And now ... when companies bid on the Supposed free market for the purchase of even 'trivial' companies the Senate is stepping into prevent it.

Apparently TSM cannot support his opinion; he resorts to an absurd hypothetical scenario, follows with a factually incorrect statement and finishes by going off topic.

 

[Polly]

China is continuing to buy US T-notes despite its non-parity (Yuan v. Dollar) policy.
...

China is only buying your Treasury Bills because she is swamped by all these green backs she receives from selling you cheap products. The flood of green backs puts RMB under appreciative pressure which is not good, as she needs investment in and expansion of the economy that spawns at least 20 million new jobs per year to absorb all school-leavers. Any GDP growth below 8% will see her fall short of the goal. So what does she do to keep RMB cheap? She recycles those green backs by buying T-bills, earning a dismal interest that is likely to be offset by the depreciation of the dollar of course, but keeping RMB articficial low anyway while buying time so that she can get hold of all the US technology and know-how and the whole industrial base. Needless to say she is also then able to indirectly control the long-term interest rate and therefore the US economy, she sits out one such T Bill aution, Dow Jones will crumble, as Japan has demonstrated herself in the 80's.

Why can’t we “keep up the present rate of personel consumption”? What dire consequences await us?

As at the end of 2004, the budget deficit situation of America, can be liken to a man who has an annual revenue of USD100,000, but owes third parties a total of USD230,000. He can of course go further into debt to keep the entire debt revolving, but if interest rate shoots up (as a result of China stopping to buy T-Bill aution, for instance), or his income decreases to the extent that he cannot even pay off the interest of the debts, creditors will call loan of course, demanding the debts to be settled. By then the whole world will realize the green back, not backed by gold or anything, is only an empty token of exchange and everybody will dump it like mad. The USD will cease to be the reserve currency of the world and all those trading with the USA will demand to be paid in other currencies, the Americans will have little means to pay for inports, to the extent that they cannot be self-sustaining or cannot resort to barter trade, hyper-inflation will follow and all hell will break loose.

Just my A-level economics talking .

 

[Anttech]

Apparently TSM cannot support his opinion; he resorts to an absurd hypothetical scenario, follows with a factually incorrect statement and finishes by going off topic.

And what you call this? Perhaps not OT but yours was the first post, I think the rest is evident within your post

The US has a national debt proportionally similar to that of France or Germany and about 50% of Japan’s. Some of the US debt is owed to its corporations and citizens while some of it is owed to foreign entities. China has a large trade surplus with the US and increasingly owns a goodly share of the US debt.

China, by virtue of its low paid workforce, exports goods and services to the US that enhance the US citizen's standard of living. The US pays for the low priced products with the US dollar. The Chinese can distribute, save, or invest the dollars as they see fit.

Some posters, the US haters such as TSM find much enjoyment in the fact that China owns a large amount of US debt. Why is the US debt seen as a negative for the US and a positive for China?

In a high school economic class we might be taught that owing money is a bad thing. Is that really true?

 

[loseyourname]

As at the end of 2004, the budget deficit situation of America, can be liken to a man who has an annual revenue of USD100,000, but owes third parties a total of USD230,000.

Sure, if the national debt was 230% of GDP. According to the Congressional Budget Office, it was 36.5% in 2004.

Our real problem right now is the budget deficit, which has gone (you can see on the same table) from a $128 billion surplus in 2001 to a $412 billion deficit in 2004. A $540 billion swing in three years is an awful lot. Granted, with an $11.5 trillion GDP, that number looks worse than it really is, but government spending clearly needs to be reigned in.

 

[Psi 5]

A friend of mines goal in life is to die as massively in debt as possible, thus living as far beyond his means as possible. Not a good philosophy for america but good for those of us who will be dead when it comes time to pay the national debt and that time may be closer than we think.

 

[GENIERE]

…China is only buying your Treasury Bills because she is swamped by all these green backs she receives from selling you cheap products. The flood of green backs puts RMB under appreciative pressure which is not good, as she needs investment in and expansion of the economy that spawns at least 20 million new jobs per year to absorb all school-leavers. Any GDP growth below 8% will see her fall short of the goal…

Nice start, really bad finish. If your doomsday scenario occurs, will not the economy of other nations be even more negatively affected than that of the US?

What would be the effect on France’s economy, or on the economy of any other nation including China?

http://www.ambafrance-us.org/franceus/trade.asp

“U.S. economic ties with France are extensive and mutually beneficial. On average, over $1 billion in commercial transactions take place between the two countries every day of the year. France is the 9th largest merchandise trading partner for the United States and the sixth largest for trade in services… Sales of U.S.-owned companies operating in France and French-owned companies operating in the United States outweigh trade transactions by a factor of five. France is technically the 5th largest foreign investor in the U.S. ($143 billion, 10,4% of total FDIs), but is virtually tied with Japan, Germany and the Netherlands at the 2nd position.
Foreign direct investments (FDI) are the cornerstone of the strong French-American economic relations…there are at least 2,400 French subsidiaries in the U.S., providing more than 500 000 direct jobs and generating an estimated $160 billion turnover... U.S. subsidiaries in France provide about 580 000 direct jobs, with a $135 billion turnover (2001). “

 

[GENIERE]

... but government spending clearly needs to be reigned in.

Any reining in must begin at the federal level else it is a fruitless endeavor.

 

[Anttech]

What would be the effect on France’s economy, or on the economy of any other nation including China?

It would adapt, stop thinking everything begins and ends with America

 

[Polly]

Oh my god, SmokeyMan did you get banned again? What have you done now? Don't worry alright, our thoughts are with you .

 

[Polly]

Sure, if the national debt was 230% of GDP. According to the Congressional Budget Office, it was 36.5% in 2004.
Our real problem right now is the budget deficit, which has gone (you can see on the same table) from a $128 billion surplus in 2001 to a $412 billion deficit in 2004. A $540 billion swing in three years is an awful lot. Granted, with an $11.5 trillion GDP, that number looks worse than it really is, but government spending clearly needs to be reigned in.

Oh boy, just when I thought I could bluff my way through without attracting any attention... . 230% is a mental note I had of the situation made earlier on. As I have lost track of the supporting evidence now so I went off digging other sources. According to http://mwhodges.home.att.net/nat-debt/debt-nat.htm" , the TOTAL US debt stood at 40 TRILLION last year, that's 347% of this year's GDP or annual revenue in my example.

 

[Polly]

Nice start, really bad finish. If your doomsday scenario occurs, will not the economy of other nations be even more negatively affected than that of the US?
What would be the effect on France’s economy, or on the economy of any other nation including China?

We will be all affected to varying degree no doubt, depending on whether we have done enough to offset the effect. If I appeared to suggest that the Chinese arranged the scheme by calculating design, it was not my intention and my applogies. The very smart Japanese was the trailblazers, the Chinese merely followed suit.

 

[loseyourname]

Oh boy, just when I thought I could bluff my way through without attracting any attention... . 230% is a mental note I had of the situation made earlier on. As I have lost track of the supporting evidence now so I went off digging other sources. According to http://mwhodges.home.att.net/nat-debt/debt-nat.htm" , the TOTAL US debt stood at 40 TRILLION last year, that's 347% of this year's GDP or annual revenue in my example.

Oh come on, Polly, you should know that the total debt doesn't mean a whole lot by itself. The number from the CBO is the public debt, money that the government itself owes, whereas your number (I'm sure know, but to clarify for anyone that does not) is the total debt of all businesses, all households, and the government combined. The problem with using this number as a doomsday prediction is that most of this debt is simply going around in circles. Households owe money to businesses, which in turn owe money to individuals (venture capitalists), other businesses (banks), and the government (fed banks and bonds). The government itself owes a lot of its money to individuals (bonds) and to businesses (private banks). If we're simply going to take the total debt, then we need to distinguish between money the US as whole owes to itself, and money it owes to others (minus what those others owe the US) to get an accurate picture of how much of a problem this actually is.

Just with respect to individual debt, consider the inflation of that number due to people owing mortgage payments. My parents, for instance, still owe well over $100K, which is well in excess of the household income, but that is owed over the course of the next fifteen years, and the number is far less than the income for the household projected over those fifteen years.

You'll notice http://www.publicdebt.treas.gov/opd/opdpdodt.htm that, even in the case of the public debt, half of it is simply one government agency being in debt to another.

Unfortunately, I cannot find anything on the total debt of all countries, but I did find this, which indicates Indonesia as being the only country whose external debt was in excess of its GNP, as of 1999. I haven't been able to find a more current version of this.

 

[edward]

Are you offering that as an opinion or as a fact? Why can’t we “keep up the present rate of personel consumption”? What dire consequences await us?

Personel bankruptsy for one.

A great amount of personel consumption is being done on credit. Those little plastic cards have individuals more in debt than ever before in history.

What people consume on credit makes the GDP look better than it actually is.
Another example is the amount Americans spend on medical care. As of 2002 a whopping 14.6 % of our GDP is accredited to what was spent on medical care.

Comparing our GDP to that of many other countries is oranges and apples due to the fact that we spend more on credit and we spend a lot more on medical care. Even the cost of fighting forest fires is added to the GDP.

We ave a lot of "product" that really isn't product.