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April 19, 2006
Anti-dark matter
Brad Selzer takes another good swing at the "dark matter" thesis - "RGE - You can not put dark matter in a container . . .". His conclusion, based on his own work and that of Daniel Gros, is that it is all an artifact of bad data. But the implication of adjusting for the bad data are important:
Bottom lines:
* The high returns on US investment in Ireland sure look like tax arbitrage.
* The low reported return on foreign direct investment in the US makes no economic sense.
* The fact that the US data shows that US firms investing abroad have large reinvested earnings while foreign firms investing in the US have no reinvested earnings doesn't make much sense either. After you adjust for this fact, a lot of the "dark matter" that Hausmann and Sturzenegger claim to have discovered suddenly disappears.
* Tax arbitrage may reduce the reported stock of debt claims on the US, not just the reported income on foreign assets on foreign direct investment in the US.
* According to Gros, the United States' real external position is far worse than the official data reports. The US has more net external debt. The US income balance is already in the red. And the US current account deficit is BIGGER than officially reported.
So, the dark matter folks are partly right: the data misses alot. But the part that it misses, according to Gros and Selzer goes in the other direction to a much larger deficit.
Not good ..., not good at all!
Posted by Ken Jarboe at April 19, 2006 12:40 PM
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