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.)


Thai baht rises to 31.06 to the dollar

Bloomberg: Baht Rises to 13-Year High as Growth Outlook Boosts Inflows:

Sept. 6 (Bloomberg) — Thailand’s baht rose to the strongest level since 1997 as the outlook for economic growth and speculation interest rates may rise further encouraged investors to pour money into the nation’s stocks and bonds.

The baht gained 0.4 percent to 31.07 per dollar as of 1:32 p.m. in Bangkok and touched 31.06, according to data compiled by Bloomberg. That’s its highest level since August 1997, when the currency’s collapse helped trigger the Asian financial crisis.


NYT: “China Passes Japan to Become No. 2 Economy”

NYT: “China Passes Japan to Become No. 2 Economy“:

After three decades of spectacular growth, China passed Japan in the second quarter to become the world’s second-largest economy behind the United States, according to government figures released early Monday.

The milestone, though anticipated for some time, is the most striking evidence yet that China’s ascendance is for real and that the rest of the world will have to reckon with a new economic superpower.

Related post: “More on China, the U.S., GDP, and economic power.”


More on China, the U.S., GDP, and economic power


One of the great pleasures I derive from blogging here is receiving feedback from knowledgeable and thoughtful readers. One such reader — a person who has asked not to be identified — wrote in to correct my Dec. 11 post about American misperceptions of Chinese economic might.

As you’ll recall, I linked to a post by the inimitable James Fallows, in which he pointed out a recent Pew report about American views on global economic power.

The report found that 44 percent of Americans think that China — not the U.S. — is the “top global economic power.” This despite the fact that in addition to other telling factors, China’s GDP is less than one third of America’s. (See chart on the right.)

As it happens, there’s more to the story. As the reader pointed out in an email to me, the issue is not merely the 44 percent of those surveyed who picked China. In addition, it’s telling to note that just 5 percent of respondents named the “EU countries.”

Indeed, when it comes to GDP alone, a look at the 2008 numbers from sources like the IMF and the CIA World Factbook demonstrate that the European Union’s collective economy is, in fact, larger than America’s. (See the graph of national GDPs; bigger version here.)


The CIA World Factbook’s 2008 report, for instance, says that the EU’s economy is worth $18.14 trillion — compared to $14.44 trillion for the U.S.

The IMF’s estimate is similar, while the World Bank puts the U.S. ahead of the Eurozone, since the Eurozone excludes the U.K. This Wikipedia page — List of Countries by GDP (nominal) — summarizes of the three reports quite nicely.

Now, back to the Pew report. Let’s not forget that the question was not “which country (or union) has the world’s largest GDP?”

Rather, the question was which country is the “world’s leading economic power.” Since the EU and Eurozone are not a single country, one can argue that they don’t wield as much economic power as the U.S. That’s because America, of course, is a single economic entity, while the EU cannot always act in a unified way based on the desires of its constituent members.

Fascinating stuff.


American misperceptions about China’s economic power


Note: I have updated this post here.

Excellent post from James Fallows pointing out that a new Pew report shows that 44 percent of Americans think that the “top global economic power” is China. Just 27 percent of respondents correctly picked the U.S.

Yes, China owns a lot of American T-bills. And yes, China’s economy is developing rapidly. But China’s economic might is not as great as many people assume.

From an Oct. 22nd story in the Economist headlined “The Odd Couple: America should be much more confident in its dealings with its closest rival”:

China’s economy is still less than a third the size of America’s at market exchange-rates. Its GDP per head is one-fourteenth that of America. The innovation gap between the two countries remains huge. America’s defence budget is still six times China’s.

(Emphasis mine.)

Check out Fallows’s post (linked to above) for more info.


“Betting on Thailand”

I wanted to point out a column in Wednesday’s IHT/NYT called “Betting on Thailand.” It’s a look at how Thailand compares — and will compare over the next 20 years — with its regional neighbors in terms of business and economic development.

Here’re the last two graphs, which are particularly interesting:

Indeed, Thailand’s long-term strengths could be in the areas in which Vietnam is weak. Thailand’s successes, from sex tourism to medical tourism, owe much to freewheeling attitudes and individual initiatives, as well as to its superb location and diverse geography. For sure, public investment helped but Thais have been uniquely successful in creating a huge tourism industry. Big foreign-owned industries like cars are important but less so than a myriad of smaller enterprises that flourish in a society that is at one level very nationalistic but is sufficiently self-confident to be open to foreigners. It may be well suited to a transition to a higher-valued-added economy based on services and — like Italy — a source of niche products and creative design.

It may not get there. But if Thailand’s history of adaptation is any guide, do not bet against it. In 20 years Vietnam will have a bigger economy, will have made more money for today’s investors, and may carry more international weight. But for quality of life in an open society, my money would still be on Thailand.

(Emphasis mine.)