Now raising intellectual capital
If current trends continue, China might swing to a trade deficit
in the not-too-distant future. Given that China has enjoyed more
than a decade of strong exports, this may sound a bit far-fetched.
But even if it happens, this would not necessarily be something for
the world to worry about.
Some economists have recently sounded alarm bells about the
possibility of a Chinese trade deficit. They argue that if the
Chinese current account surplus shrinks, it would leave Beijing
with less spare cash to buy U.S. Treasury bonds. Then who would
fund the U.S. budget deficit — and, by implication, U.S.
Those worries are largely misplaced. First, it is unlikely
to happen any time soon. In order for China to have a trade
deficit next year, imports would have to outgrow — or shrink
less than — exports by at least 23 percentage points.
In August, exports fell 23.4 percent while imports fell 17
percent. So while the trade surplus is diminishing, a deficit is
not around the corner.
from Rolfe Winkler:
Some breaking news from Reuters about an updated deficit projection:
The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.
The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama's opponents, who say his spending plans are too expensive in light of budget shortfalls.
Bond market vigilantes — investors who punish profligate governments by pushing up their cost of borrowing — have been remarkably quiescent.
This week the U.S. government has broken all records for debt sales. Come Friday investors will have bought $115 billion of freshly minted Treasury paper, and given the huge scale of these auctions, investors have shown only modest signs of indigestion.
Issuing a bond or taking out a bank loan to support a pension fund deficit is not a solution to a problem. It is simply a way of funding one future liability with another. At best it defers the problem; at worst it can magnify it.
So when British Airways <BAY.L> gets a big pat on the back for borrowing 300 million pounds and securing the facilities to borrow another 330 million pounds, in spite of having net debts of 2.5 billion pounds at the end of June, this just underlines the nastiness of the financial state it is in .
It’s a bit rough on BA that the triennial review of its pension funds should have co-incided with the bottom of the equity market at the end of March, since the result will be a deficit in excess of 3 billion pounds.
Even that might be said to be too optimistic, if the last declared discount rate of 6.9 percent is repeated. The higher the rate, the smaller the current value of the liabilities. BT’s, for example, is 6.85 percent, and the Royal Mail’s 6.4 percent,