Friday, March 28, 2014

Living beyond our means (and buying tat)

The £22bn Current Account Deficit Mystery

Sky says, "The current account balance is one of those economic numbers that tends to linger in the backdrop these days. In the era of the Gold Standard and Bretton Woods system, when a country’s economic policy was largely determined by its balance with the rest of the world, this measure of one’s international ledger was all-important. These days, other numbers - GDP, inflation, unemployment – tend to hog the headlines. But, the current account matters! It is the comprehensive measure of how much a country is sucking in from overseas". "According to IMF figures, Britain’s current account deficit for 2013 as a whole (4.4% of GDP) was greater than in any other developed economy (including Greece, Cyprus etc)". Maybe our only recovery is in retail spending on German cars & tat?

Posted by alan @ 02:40 PM (2700 views)
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3 thoughts on “Living beyond our means (and buying tat)

  • mark wadsworth says:

    Obviously, the UK is in a right old mess and has been for decades.

    Nonetheless, it would be mathemtically possible for a country to have a permanent trade deficit and still become richer all the time.

    For example, a country’s GDP and capital base increases year by year, let’s say value of all capital (proper capital, not land values) goes up by £100 billion, and the country has a £50 billion trade deficit. Johnny Foreigner then takes his £50 billion and having nothing else to spend it on, buys up businesses etc in the deficit country (that’s like exporting something that stays in the country – inward tourism is actually an export of services).

    So foreign ownership increases as a share of total, but domestic citizens are also getting £50 billion richer every year. Those foreigners will gradually become domesticated and it all cancels out nicely.

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  • stillthinking says:

    http://www.telegraph.co.uk/finance/economics/10729241/UK-current-account-gap-second-widest-on-record.html

    Here as well. Apparently the UK has a good net asset position so the deficit might as you say be due to less malignant factors such as very poor overseas earnings. Time will tell. The worst explanation would be government deficit spending and consumer borrowing sucking in imports.

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  • Hi MW,

    Thanks for that. I think there is an assumption of growth YoY in that academic arguement.

    Says the BBC:
    “At the end of 2013, the size of the UK economy remained 1.4% below its pre-downturn peak reached at the beginning of 2008, the ONS said, but signs of economic recovery strengthened in 2013”.

    http://www.bbc.co.uk/news/business-26783197

    The UK is in a blinkin’ muddle and a high street boom won’t do any good IMHO. As for industrial investment, why bother investing in production facilities to make things people want if you can get 12% capital return speculating on (say) Battersea flats, off plan?

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