The Economist Friday said:

In a rare instance of economic consensus, almost everyone now agrees that the current-account balance, which was over $800 billion in the red at the end of last year, is unsustainable.

They should know that there is no such thing as a consensus of economists. I am not a macro guy, but if the US economy continues to generate capital (intellectual property, companies with lots of educated workers, houses, etc.) at a tremendous rate, then the capital surplus will result in other countries giving us non-capital goods in exchange for our capital goods. A capital surplus and a trade deficit are the same thing.

For all our regulation, taxes and flaws in our judicial system, most of the rest of the globe has less rule of law, higher taxes and more flaws in their judicial systems. The US is a great place to make safer investments like real estate and blue chip corporate bonds. Do you think the Norweigians and Saudis invest their huge current account surplus in their own respectively not so dynamic and not so productive economies?

As I said before, our human and physical captial stock is growing by a lot. Even though the average house price went down for one quarter, it has been growing at 6.5% in money terms for 43 years or 2.1% accounting for inflation. That leads to $440 billion in appreciation of the existing capital stock. The number of homes has also been growing. I estimate this by looking at the home ownership rate, the number of people per household and the growing population. Together they indicate we add another 1.8% a year to the housing stock in numbers. (This could be offset by less rental housing capital, but I doubt it.) So that is about $800 billion we are adding to the housing capital stock and residential housing construction is just 3-4% of GDP.

We can grow the US owned capital stock forever and have plenty left over to sell to foreigners.

I'd like to see trade deficit logic applied to interstate commerce. Imagine Californians ranting about losing their jobs to Texas.

Unemployment is low. More "jobs" for Texas means either lower unemployment, or more into the job force likely through more immigration from California or Mexico or whereever. If we Texans are importing more wine from California and spending more on holidays in California then they spend on our beef, then we have to invest in California high tech mutual funds or California REITs. It really is no big whoop.

Either Sam is way smarter then every economist on the planet
or he's wrong. I like sam, but, i'm not sure about the former
proposition.

While the US is generating Capital, our trade deficit results in
this capital being owned outside of the US. The Profits(return)
on this investment is exported, and we endup poorer.

I don't mind rich americans. Even if they don't become philanthropists, they die, their heirs die, they spend it
domestically.

When we make rich arabs, chinese and norwegians, they
make more rich arabs, chinese, etc who don't become
US consumers, who don't become domestic philantrhopists,
etc.

The trade deficit will result in a poorer nation. Every nation
with a net trade deficit became poor for generations, maybe
centuries. Britain, spain, india.

Actually, what he says agrees completely with what Economics Phds are telling me in Chicago - they phrased it as "when someone offers you a loan at these rates, you take it!"

One thing to remember is that 80% of the return on capital goes to workers, 20% goes to capital owners. (That is a general rule that has fit the data for >1000 years!) That means that money is spread out pretty evenly fairly quickly. (Of course, CEOs are workers too - and they get to determine their own salary...)

The way to look at this is: China loans US money at 4% interest. This money is used to run the government - so really, China has loaned taxpayers money at 4% interest (because taxpayers would otherwise have to fund the money themselves). Smart taxpayers use this extra money to invest in the US economy, and receive (on average) a 15% return - while US workers also get jobs as an additional benefit.

Whenever someone offers you a 4% loan, take it! At the very least, put it in a corporate bond at 6%!

As an aside, ever wondered why China is willing to take treasury notes at 4%? I think all this talk about the yuan being undervalued is rather suspicious given that those in the position to know the most (Chinese businessmen) are dumping yuan to get dollar investments.

I will bet you $1 I am the smartest economist on the planet (at least on this topic). Prove me wrong.

All the situations anonymous cited were situations where there was capital flight; capital was depreciating faster than it was being replaced and the capital was draining out of the country. We are growing capital like mad. We have capital gain free housing investment (only property taxes), federally guarantee mortgages, federally guaranteed student loans, small business loans: lots of incentives for investment and the federal government only 20% of GDP. The US is a great place to do business. No wonder people want our capital.

It is politicians that decry the trade deficit. The trade deficit leads to falling currency other things being equal. They are not equal. We are growing lots of cool capital while many other parts of the world struggle to maintain the capital they have. In Italy for example, human capital is exiting the economy faster than it can be replaced because the anti-immigration forces have won. In the Canary Islands, no one ever finishes their house because they would owe more taxes on a completed house. There are many parts of the world where no one can get a mortgage.

Where do you think Saddam Hussein got his $1 billion to steal from his central bank? We got oil, he got paper money--chalk up $1 billion in trade deficit. Nice deal when you can get it. The trade deficit is no big whoop.

In Italy for example, human capital is exiting the economy faster than it can be replaced because the anti-immigration forces have won.

It's the same fore the Netherlands and a lot of other European countries