Dark Matter

A pretty surprising article on the CA deficit. It says it really isn't there. How do we know if there is a leak in the model?

You can calculate a price for an asset from the earnings it provides. Messrs Hausmann and Sturzenegger elect to value America's net foreign assets at 20 times their annual earnings, which corresponds to a 5% rate of return. Valued at this ratio, America's national “portfolio” of foreign assets and liabilities is really worth $724 billion, not minus $2.5 trillion. What is more, if its foreign assets are as stable as the authors say, it follows that “the country has not been running a deficit.”

I have to admit I feel a bit skeptical. Ok, maybe a lot.