Comments on: The unpleasant arithmetic of compound interest http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/ Out of the crooked timber of humanity, no straight thing was ever made Sat, 20 Mar 2010 16:07:55 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: John Mc http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154461 John Mc Thu, 04 May 2006 18:56:37 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154461 "How will the Communists cope with massive unemployment once it’s best customers can not longer buy all that product?" By shooting them. “How will the Communists cope with massive unemployment once it’s best customers can not longer buy all that product?”

By shooting them.

]]> By: dearieme http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154242 dearieme Wed, 03 May 2006 15:09:22 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154242 "The most important thing to remember about debt instruments is that the combined sum across all entities is zero". Only if the books are honest? “The most important thing to remember about debt instruments is that the combined sum across all entities is zero”. Only if the books are honest?

]]> By: Daniel http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154204 Daniel Wed, 03 May 2006 10:33:05 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154204 But the effect of the trade balance on the economy is fungible, whereas dividends are paid from specific companies. Entirely possible for US corporations to be paying their dividends out of foreign earnings, which would be just as contractionary to the US economy if they paid them in USD. But the effect of the trade balance on the economy is fungible, whereas dividends are paid from specific companies. Entirely possible for US corporations to be paying their dividends out of foreign earnings, which would be just as contractionary to the US economy if they paid them in USD.

]]> By: Tim Worstall http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154202 Tim Worstall Wed, 03 May 2006 10:05:08 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154202 Quite, equity isn’t a problem in a crunch at all. If there’re no profits, there’re no dividends flowing out. Quite, equity isn’t a problem in a crunch at all. If there’re no profits, there’re no dividends flowing out.

]]> By: John Quiggin http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154197 John Quiggin Wed, 03 May 2006 09:35:12 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154197 "there is quite a strong flow of FDI into the US for example." Not lately, I think. See <a href="http://www.rgemonitor.com/blog/setser/archive/2005-03/5/10/" rel="nofollow">Brad Setser</a> again. But as far as the CAD is concerned, both debt and equity sales generate income outflows, though debt is more problematic in a crunch. “there is quite a strong flow of FDI into the US for example.”

Not lately, I think. See Brad Setser again.

But as far as the CAD is concerned, both debt and equity sales generate income outflows, though debt is more problematic in a crunch.

]]> By: Tim Worstall http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154195 Tim Worstall Wed, 03 May 2006 09:15:38 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154195 John, A trade deficit doesn’t inevitably lead to increased debt. Depends upon how it is financed. Can be done by asset sales...there is quite a strong flow of FDI into the US for example. That may or may not change your calculations, just wanted to get the point in that trade deficit does not inevitably mean increased debt. John, A trade deficit doesn’t inevitably lead to increased debt. Depends upon how it is financed. Can be done by asset sales…there is quite a strong flow of FDI into the US for example. That may or may not change your calculations, just wanted to get the point in that trade deficit does not inevitably mean increased debt.

]]> By: aaron http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154181 aaron Wed, 03 May 2006 05:51:40 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154181 Of course, I haven't looked closely at trade deficits. But I've felt strongly about them for years. There are times and reason's to borrow. Maintaining consumption isn't one. Borrowing should be done when the return is greater than the interest. Of course, I haven’t looked closely at trade deficits. But I’ve felt strongly about them for years. There are times and reason’s to borrow. Maintaining consumption isn’t one. Borrowing should be done when the return is greater than the interest.

]]> By: aaron http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154180 aaron Wed, 03 May 2006 05:47:23 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154180 I've been harping on this for a while, as have others. <a href="http://cumulativemodel.blogspot.com/2006/04/policy.html" rel="nofollow">Here's a post</a> I wrote last week. I’ve been harping on this for a while, as have others. Here’s a post I wrote last week.

]]> By: Martin James http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154175 Martin James Wed, 03 May 2006 04:19:08 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154175 The most important thing to remember about debt instruments is that the combined sum across all entities is zero. From a global equality point of view, a rebalancing of wealth from the english-speaking countries to other countries should be a positive. So it seems the traditional vices of greed, gluttony and sloth may pave the way for the modern virtue of global justice. The most important thing to remember about debt instruments is that the combined sum across all entities is zero.

From a global equality point of view, a rebalancing of wealth from the english-speaking countries to other countries should be a positive.

So it seems the traditional vices of greed, gluttony and sloth may pave the way for the modern virtue of global justice.

]]> By: Ted http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154171 Ted Wed, 03 May 2006 02:54:24 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154171 If Americans can no longer buy all that consumer crap from China, are the Europeans able to step into the breach? How will the Communists cope with massive unemployment once it's best customers can not longer buy all that product? If Americans can no longer buy all that consumer crap from China, are the Europeans able to step into the breach?

How will the Communists cope with massive unemployment once it’s best customers can not longer buy all that product?

]]> By: J Thomas http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154168 J Thomas Wed, 03 May 2006 00:58:25 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154168 <i>A decade of say 15% inflation would have very little imapct on the US economy, but it would make that foreign debt go away nicely. Right?</i> Not only that, it would help get rid of those pesky imports and foreign investment that are causing us so much trouble. A decade of say 15% inflation would have very little imapct on the US economy, but it would make that foreign debt go away nicely. Right?

Not only that, it would help get rid of those pesky imports and foreign investment that are causing us so much trouble.

]]> By: lemuel pitkin http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154145 lemuel pitkin Tue, 02 May 2006 22:23:45 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154145 <i>Unless the trade deficit starts turning around fairly sharply, this would imply a current account deficit close to 10 per cent of GDP</i> Depreciation fixes this, tho, regardless of what happens to the trade deficit. A decade of say 15% inflation would have very little imapct on the US economy, but it would make that foreign debt go away nicely. Right? Unless the trade deficit starts turning around fairly sharply, this would imply a current account deficit close to 10 per cent of GDP

Depreciation fixes this, tho, regardless of what happens to the trade deficit.

A decade of say 15% inflation would have very little imapct on the US economy, but it would make that foreign debt go away nicely. Right?

]]> By: John Quiggin http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154134 John Quiggin Tue, 02 May 2006 21:57:21 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154134 Des, have you factored in the depreciation of the $US that will be needed to restore trade balance? Des, have you factored in the depreciation of the $US that will be needed to restore trade balance?

]]> By: des von bladet http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/comment-page-1/#comment-154126 des von bladet Tue, 02 May 2006 21:26:58 +0000 http://crookedtimber.org/2006/05/02/the-unpleasant-arithmetic-of-compound-interest/#comment-154126 As a near-future convert to Dutch taxes, is 5.1%'s worth of US govt. bond available to random punters off the street? 'Cos assuming they aren't going to default (which is admittedly an assumption given the ambient craziness of BushCo's arseclownery), I'd be tempted by a piece of that. As a near-future convert to Dutch taxes, is 5.1%’s worth of US govt. bond available to random punters off the street? ‘Cos assuming they aren’t going to default (which is admittedly an assumption given the ambient craziness of BushCo’s arseclownery), I’d be tempted by a piece of that.

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