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Counter Facts About The US Economy

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Charles Gave of GaveKal which is one of the world s most prominent fund manager and research firm debunks a few interesting myths about the US in his blog. Unfortunately it is all in French but you will find a translation below:

"The US is the most indebted country in the World"

The US obviously has a large current account deficit but it by no means makes it the larger debtor in the world. Actually quite the opposite, the quarterly published balance of payments is positive by 270 BN and in constant progression. This means the cash flow that US economic agents get from overseas holdings is higher than what they pay to foreigners with investments in the US. This should mean that the values of US overseas holdings is higher than that of foreign owned US holdings.

Moreover, 60% of US imports comes from US corporations producing abroad and exporting from China, Brazil or Europe towards the US. US companies export jobs and import profits which is healthy at this stage of economic development.

This, according to Charles is made possible by the US treasury market. For legal, economic, historic and sovereign reasons, most BRICs businessmen invest their savings in US treasuries. They do not do so for a return but for safety in case they have to pack a suitcase and rush on plane. Sovereign entities also do so but more for the depth of the US treasury market. The US in turns consumes part of it and invests the rest in risky productive assets abroad.

So yes, the US is like a large hedge fund which borrows at 2% and invests abroad at 15% thus generating a positive cash flow vis-a-vis the rest of the world.

"The US role in the global economy will keep diminishing"

The US GDP represented 23% of global GDP in 1981 vs. 21% today. This is relatively stable but more important that the US positioned itself as the unchallenged leader of the next gen economy, the knowledge based economy.

All major recent Schumpeter style (creative destruction) economic breakthrough have come from the US and they keep doing so: Apple, Youtube, Google, Microsoft. IBM, Amazon, Facebook etc....

Never has a country dominated invention in such a way throughout history.

"The US is going through a rapid process of deindustrialization"

In reality, US manufacturing is still the largest in the world and its weight in the US economy has not decreased. It is by far the one where productivity is the strongest. Half of all industrial patents are from the US where 40% of global manufacturing R&D spending is made. Moreover, considering all the progress in logistic and robotic, signs of an industrial boom are appearing.

"The Dollar is about to collapse and los its reserve currency status"

This is the funniest of them all. To be a reserve currency, one has to be dominant in military, finance, agriculture, science, culture while offering a complete legal safety to all investing in the currency.

If anyone can tick all those boxes it is certainly not any of those (every other central banks in the world) who at every crisis have to ask the fed for dollar swap lines.

So yes Mr Tyler Durden and others, it is easy amd makes good headlines to declare the end of the US economy and while its leaders and its central bank have put the country in a difficult situation, to judge a whole country by its leaders only while ignoring all its breakthrough and dominance can be an expensive mistake! Long Apple anyone?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.