Off topic: Analyzing the US federal deficit and GDP to debt ratio

I wanted to point out two excellent resources for explaining some of the macroeconomic issues related to the debt ceiling standoff in Washington at the moment.

The first is a dispassionate piece from that examines U.S. federal spending versus income. The current problem is represented in this graph:

2011 07 20 outlays revenues

The red is outlays — or spending — and the blue is revenues. Not a pretty picture.

(Interestingly, on the one hand, the gap between spending and revenue is especially big now. But on the other hand, running a significant deficit has been the norm since the 1970s.)

To summarize the piece: For the last several years we have had increased federal spending due to the stimulus package, banking bailout, and Social Security and Medicare payouts. In addition, military costs are up due to post-Sept. 11 wars.

At the same time, federal revenues are down partly due to reduced income tax receipts because of the Bush tax cuts. And the recession has meant less revenue from corporate taxes.

Read the whole thing.

And second, I suggest listening to the most recent episode of NPR’s “Planet Money” podcast. It’s called “How Much Debt Is Too Much?”

2011 07 20 debt to gdp

Harvard economist Ken Rogoff discusses historical rates of sovereign debt and examines various countries’ GDP to debt ratios. This is a measure of the total value of nations’ economies compared to how much they owe.

What do you think this ratio is for three countries in the news of late: Greece, Italy, and the U.S.?

Listen to the show to find out. The figures may surprise you.

(Image: Global debt to GDP ratio, via Wikipedia.)


Reuters on wages and inflation in Thailand

A Reuters story from yesterday: Analysis: Thailand risks growing old before it gets rich:

Earning $6 a day from her food stall outside her home next to a railway track, Lumyai Rungruang is sceptical of news that Thailand’s wages are rising. The 54-year-old is too busy contending with spiralling inflation.

Coconut juice has doubled in price. Egg prices are up 50 percent at 90 baht ($2.95) a dozen. Doubtful her income can keep pace, she bristles when pressed about her future.

“I expect to work the rest of my life,” the mother of five said from her makeshift stall with its corrugated iron roof and bamboo stools, where she sells rice porridge and noodles.

For the past decade, Thailand’s minimum wage has trailed inflation, creating one of the widest gaps between rich and poor in Asia according to the World Bank, and fuelling working-class frustrations that erupted into violent street protests last year.

But Thai wages are creeping up, supported by an average 6.4 percent minimum-wage increase this year, rising agricultural prices that have helped farmers, a shortage of skilled workers and a planned increase in civil-servant salaries from April.

While higher incomes could boost Prime Minister Abhisit Vejjajiva’s chances at polls this year and prod consumer spending, they raise questions over whether Thailand’s economy, Southeast Asia’s second biggest, can keep its cost advantage over Asian rivals — from China to Malaysia and India.

They also highlight another troubling question facing the Thai government and millions of workers like Lumyai: will Thailand grow old before it grows rich, as its population of 67 million people ages at one of the fastest rates in Asia?

(Emphasis mine.)

Thai politics Thailand

What does the rising baht mean to the Thai government and exporters?

For an examination of what the rising Thai baht — previous posts here and here — means to the Thai government and exporters, I suggest this post from James Harriman at Asian Correspondent:

Panic over the rising baht:

…The Thai baht has strengthened significantly versus the US dollar over the last year, as have most other Asian currencies. As of the second week of October, the baht is up 10.8 percent against the dollar, making it the strongest performing currency in Southeast Asia. Factors driving currency appreciations in the region include interest rate differentials with the US, current account surpluses, and positive investment sentiment on local stocks and bonds.

Market watchers anticipate the US Fed will flood the market with additional liquidity in the coming months, which will put further upward pressure on regional currencies.The graph below shows the performance of regional currencies versus the dollar over the last year. All regional currencies have appreciated with the exception of the Vietnamese Dong, which has depreciated almost 10.0 percent.


(Click through to the post to view a larger graph.)


FT on Thai capital controls as baht continues to soar

A brief Financial Times blog post worth checking out: Thai capital controls: more to come:

The Thai government’s attempts to relieve the upward pressure on the baht by reinstating a 15 per cent withholding tax on foreign bond holders has had little intended effect so far. On Tuesday the baht continued its inexorable climb hitting Bt29.82 after opening at Bt29.92, an increase of 0.3 per cent on the day.

Now, it looks as though government officials may be considering an additional tax on short-term fund flows, following the lead of their Brazilian counterparts.

The baht has appreciated by nearly 11 per cent against the dollar so far this year, rattling the exporters who account for 65 per cent of GDP.


Economist Stephen Roach: “America has lost its way”

I suggest checking out this sobering IHT op-ed from economist Stephen Roach, who’s now at Yale after having been non-executive chairman of Morgan Stanley Asia.

The Asian Way:

HONG KONG — What a contrast! After three years living in Asia, I returned to the United States a couple of months ago, with enormous respect for how Asia has pulled itself together after its own devastating crisis in the late 1990s. Now I was back.

Bouncing back and forth only deepened my conviction that an important shift in the gravity of global economic power from the West to the East could well be at hand.

It’s not just the Asian miracle that reinforces my belief in such a possibility. America has lost its way. In the years I was away, it has become a very different place. The despair of chronically high joblessness is sapping the nation’s sense of self and poisoning the political debate.

(Emphasis mine.)

Roach points to problems in the U.S. such as rising unemployment rates and an overarching sense of entitlement. Meanwhile, Roach says, Asian governments have focused their policies on encouraging stability following the region’s own economic hardships.

Worth a read.

(Via D.)