Interesting read about how trade deficit is measured by the BEA.

I'm not sure what I think of it yet, but it does make sense that maybe we're not getting the whole picture in our trade deficit number.

http://www.utdt.edu/~fsturzen/darkmatter_051130.pdf

Its about a 15 min read, but here's the gyst of it for you lazy bums:

Quote :

"Consider a simple example. Imagine the construction of EuroDisney at the cost of 100 million (the numbers are imaginary). Imagine also, for the sake of the argument that these resources were borrowed abroad at, say, a 5% rate of return. Once EuroDisney is in operation it yields 20 cents on the dollar. The investment generates a net income flow of 15 cents on the dollar but the BEA would say that the net foreign assets position would be equal to zero. We would say that EuroDisney in reality is not worth 100 million (what BEA would value it) but four times that (the capitalized value at our 5% rate of the 20 million per year that it earns). BEA is missing this and therefore grossly understates net assets. Why can EuroDisney earn such a return? Because the investment comes with a substantial amount of know-how, brand recognition, expertise, research and development and also with our good friends Mickey and Donald. This know-how is a source of dark matter. It explains why the US can earn more on its assets than it pays on its liabilities and why foreigners cannot do the same. We would say that the US exported 300 million in dark matter and is making a 5 percent return on it. The point is that in the accounting of FDI, the know-how than makes investments particularly productive is poorly accounted for."

2/5/2006 12:27:32 PM

....there's only room in this galaxy for one dark matter....

2/5/2006 12:42:01 PM

^^hmmm...this assumes that this brand has mass appeal in all sectors. i know disney has mass appeal in asia, but not so much in europe. yeah, thats just related to this article, but still, isnt this assuming that all American brands have mass appeal? Quite a few do, to be sure, but I'm not sold on this. sounds like wishful thinking. I never think about it this way.

Can overseas production like this really counter the massive amount of asian manurfacting pouring into this country? i mean, im still trying to inderstand these issues myself. im more of a protectionist myself, but im still trying to gather information.


[Edited on February 5, 2006 at 7:53 PM. Reason : .]

2/5/2006 7:46:41 PM

^^That's what I thought about when I read the thread title as well.

2/5/2006 9:54:37 PM

The basis that I should have stated in the first post is that by the BEA's accounting, the U.S. should have total foreign assets of -2.5 trillion, yet somehow these assets are producing a net income of 38.6 billion/year.

The authors then theorize that the U.S. foreign assets must actually somehow be positive, and try to determine what it is that makes them positive. This is the "Dark Matter." They throw a lot of stuff at the wall to see if it sticks, such as the Disney example I posted.

2/5/2006 11:07:24 PM

interesting. im having trouble conceptualizing what exactly is the dark matter, in that why is it (according to the authors) that only the U.S. and the U.K. are exporting dark matter to the rest of the world?

2/6/2006 12:01:53 AM

is "dark matter" just a term for general financial shrewdness? that we (the US and UK) are somehow more clever in our finances, and therefore get a better ROI than other countries?

this seems suspicious. even if this is legit, and if its true, then its only a matter of time before the other countries wise up.

2/6/2006 12:05:27 AM

what its basically saying is that the gubment issues debt

makes the tax payers pay for it

and the corporations ultimately profit

2/6/2006 12:22:15 AM

im not sure thats what the paper was saying.

2/6/2006 1:28:55 AM

yeah, but is that what the cash flows are saying?

or is that fuzzy math?

2/6/2006 8:13:24 PM

The Economist takes on Dark Matter:

http://www.economist.com/finance/displaystory.cfm?story_id=5408129

Quote :

"Apart from its name, the dark matter thesis appeals because of its simplicity. Philip Lane, of Trinity College, Dublin, thinks it too simple. It matters, he says, what a nation's foreign wealth is composed of. Foreigners hold a lot of American debt (bonds and bank loans), whereas America holds a lot of foreign equity, especially foreign direct investment (FDI). This has two implications. First, what America pays to foreign creditors depends a lot on interest rates, which have been unusually low in recent years. Second, the value of America's assets depends on the risks they carry. Yet Messrs Hausmann and Sturzenegger apply the same valuation ratio indiscriminately to bonds, equities, trade credits and bank loans on both sides of the balance sheet."

Quote :

"But the authors' thesis raises anomalies of its own. By their own account, dark matter should be stable. It stems from abiding features of the American economy, such as managerial know-how, a prized but uncounted commodity that Americans export to their subsidiaries abroad. But as Ed McKelvey, of Goldman Sachs, points out, America's exports of dark matter seem to jump up and down wildly from year to year: $351 billion in 2004, $1.2 trillion in 2003, just $172 billion in 2002."

2/6/2006 9:40:32 PM

Quote :

"....there's only room in this galaxy for one dark matter...."

I beg to differ.

2/8/2006 7:54:05 AM

http://biz.yahoo.com/special/economy06_article1.html

Based on this article, I'm a believer, maybe not exactly in the "Dark Matter" theory, but at least the concept of it.

2/8/2006 5:00:32 PM