February 15, 2005
Brad Setser Examines America's Revealed Comparative Advantage
2004 US exports of debt securities: $890 billion
2004 US imports of debt securities: $2.3 billion
Balance of trade in debt securities: $888 billion
2004 US exports of goods and services : $1146 billion
2004 US exports of goods: $808 billion.
The US clearly has a comparative advantage selling debt to the world, and it is currently exploiting that comparative advantage to the maximum extent possible ..."
Ah. But why is U.S. debt so valuable to foreigners? Why is demand for U.S. debt securities so high? How much of it is central banks trying to buy high manufactured-goods exports because their State Councils are willing to pay any price for high employment and social peace in Shanghai? How much of it is foreign elites buying political risk insurance--that if the balloon goes up and if they have to flee in the Learjet or if they want their grandchildren to have the option to live in LA, they need to have a very large Citigroup account now? And how much of it is just one big mistake by the bond market--beliefs about the future that are not well thought-out and that are inconsistent?
And just how good will our central bankers turn out to be? It's not clear anyone should want to be Alan Greenspan's successor.
Posted by DeLong at February 15, 2005 09:39 AM