> On Sep 15, 2007, at 2:35 PM, Carl Remick wrote:
>
>> Doug, does that nececessarily mean increased investment to
> "reindustrialize," as you said -- which I read as meaning more goods
> producton -- or could Bernanke just mean more services trade
> ("invisibles" like financial services, etc.)? Or realistically
> speaking, is there no way services trade could do much to shrink the
> current account deficit?
Here's the full paragrah:
> Second, the large U.S. current account deficit cannot persist
> indefinitely because the ability of the United States to make debt
> service payments and the willingness of foreigners to hold U.S.
> assets in their portfolios are both limited. Adjustment must
> eventually take place, and the process of adjustment will have both
> real and financial consequences. For example, in the United
> States, the growth of export-oriented sectors such as manufacturing
> has been restrained by the shifts in relative prices and foreign
> demand associated with the U.S. trade deficit. Ultimately, the
> necessary reduction in the trade and current account deficits will
> entail shifting resources out of sectors producing nontraded goods
> and services to those producing tradables. The greater the needed
> adjustment, the more potentially disruptive and costly these shifts
> may be. Similarly, external adjustment for China and other surplus
> countries will involve shifting resources out of the export sector
> and into industries geared toward meeting domestic consumption
> needs; that necessary shift, too, will likely be less disruptive if
> it occurs earlier and thus less rapidly and on a smaller scale.
So I think he means that manufacturing investment is necessary to balance the international books. He's right - we could double the services surplus and it would be little more than bupkes. When he says "real and financial consequences" it says to me that he's thinking that some of the buckets of cash that corps have been shoveling into the markets will have to go into physical investment instead. Wall Street is not hearing this message.
Doug