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Wildebeest is a PhD MBA who invests primarily in resource stocks such as base metals, iron ore and coal.
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  • Balanced Budget Madness
    There is an accounting identity that most people are familiar with:

    A - L = E

    This says that assets, A, minus liabilities, L, equals equity, E. People understand that if liabilities exceed assets then equity must be negative. A business owner cannot successfully attempt to make E positive if the left hand side of the equation is negative.

    Likewise there is a national accounting identity:

    CA = (T - G) + (S - I)

    This says that taxes, T, minus government spending, G, plus private savings, S, minus private investment, I, must equal the current account CA. If (T - G) is positive then the government is running a surplus, if it is negative a deficit. (S - I) can be thought of as the net private sector savings. If it is positive then wealth is being accumulated.

    The USA has been running current account deficits for a very long time and it looks like it will continue to do so for a very long time. Since CA is negative it follows that the net positions of the government and private sectors must be negative by way of accounting. If the government were to run a balanced budget then T = G, so we are left with

    CA = S - I

    So by way of national accounting if the government were to run a balanced budget the private sector must go further into debt than otherwise would be the case -- as long as current account deficits continue.

    These accounting identities are what they are independent of ideology. The identity is the same whether you are liberal or conservative, or a neoclassical or Keynesian economist. So the next time you hear someone advocating for a balanced budget remind yourself that they are actually advocating further private sector indebtedness. However should a person have an ideological position that says that the government should balance its books, they would be better placed examining the structural reasons (and, given the ideological position, the fixes) for continued current account deficits, since mandating a balanced government budget merely shifts the debt burden to the private sector rather than addressing the source or cause of the debt.
    Jul 30 11:47 PM | Link | Comment!
  • Update on Sundance Resources
    The 16% stake in Sundance Resources owned by the late Ken Talbot was sold yesterday:

    The company also issued a major resource upgrade during the week. The latest guidance from the campany is that they need to raise 4 billion to complete this project and have Q1 2014 as their target completion date. This is obviously a long term proposition for investors, with many hurdles along the way, not least the raising of funds to get the project underway. It seems unlikely that Sundance Resources could complete this project without the participation of China inc. or alternatively one of the iron ore majors. I've owned Sundance previously but exited prior to the GFC. Given the long road ahead I think it is best to keep it on your watch list and look for entry points later on as project targets get met.

    Recent announcements can be found here:

    Previous articles on Sundance Resouces:

    Mar 18 6:21 PM | Link | Comment!
  • Retail Sales Data
    Non seasonally adjusted retail sales in 2005 dollars.

    Aug 31 11:28 AM | Link | Comment!
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  • Codelco output up 5.7%: pundits tell us that there are supply shortfalls and lower grades blah blah blah.
    May 27, 2011
  • Labor has claimed victory in the Australian election. This means the Labor-Green alliance will govern. A disaster for miners. Sell.
    Sep 7, 2010
  • Reports from Australia that the BHP Rio Tinto iron ore joint venture will not get regulatory approval.
    Aug 19, 2010
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