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Why do countries invest in other countries.

ironslippers
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6/12/2015 9:46:59 PM
Posted: 1 year ago
Like how is it Japan is equal to China as USAs largest investor (looking at Japans gdp/debt ratio)? Wouldn't investing at home create higher local returns (not just financially but socially) and be easier to regulate. If each nation brought home investment/returns and payed off debt, would the countries still be in the same order internationally gdp/debt ratios.
I admit to being simple (note: JMK please talk to me that way):)
Everyone stands on their own dung hill and speaks out about someone else's - Nathan Krusemark
Its easier to criticize and hate than it is to support and create - I Ron Slippers
Diqiucun_Cunmin
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6/13/2015 9:29:20 AM
Posted: 1 year ago
At 6/12/2015 9:46:59 PM, ironslippers wrote:
Like how is it Japan is equal to China as USAs largest investor (looking at Japans gdp/debt ratio)? Wouldn't investing at home create higher local returns (not just financially but socially) and be easier to regulate. If each nation brought home investment/returns and payed off debt, would the countries still be in the same order internationally gdp/debt ratios.
I admit to being simple (note: JMK please talk to me that way):)

If you're a manufacturing giant, would you prefer to invest in a factory where you have strict pollution control laws, high wages and high rent, or a place with low rent, low wages and so-lenient-as-to-be-non-existent pollution control laws? :)
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
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Greyparrot
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6/14/2015 7:50:39 AM
Posted: 1 year ago
At 6/13/2015 9:29:20 AM, Diqiucun_Cunmin wrote:
At 6/12/2015 9:46:59 PM, ironslippers wrote:
Like how is it Japan is equal to China as USAs largest investor (looking at Japans gdp/debt ratio)? Wouldn't investing at home create higher local returns (not just financially but socially) and be easier to regulate. If each nation brought home investment/returns and payed off debt, would the countries still be in the same order internationally gdp/debt ratios.
I admit to being simple (note: JMK please talk to me that way):)

If you're a manufacturing giant, would you prefer to invest in a factory where you have strict pollution control laws, high wages and high rent, or a place with low rent, low wages and so-lenient-as-to-be-non-existent pollution control laws? :)

Isn't his question the opposite of that example?
Greyparrot
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6/14/2015 7:52:07 AM
Posted: 1 year ago
Chinese companies are on a North American buying spree, investing $14 billion in the U.S. last year, a record high, says a new report by New York"s Rhodium Group.

"Chinese investment in the United States doubled in 2013, driven by large-scale acquisitions in food, energy and real estate," write analysts Thilo Hanemann and Cassie Gao in "Chinese FDI in the U.S.: 2013 Recap and 2014 Outlook," released on Jan. 7.

"We expect Chinese interest in U.S. assets to remain strong in 2014 because of aggressive economic reforms in China, a more liberal policy environment for Chinese outbound investors, and a positive outlook for the U.S. economy."
Greyparrot
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6/14/2015 8:39:42 AM
Posted: 1 year ago
At 6/13/2015 9:29:20 AM, Diqiucun_Cunmin wrote:

If you're a manufacturing giant, would you prefer to invest in a factory where you have strict pollution control laws, high wages and high rent, or a place with low rent, low wages and so-lenient-as-to-be-non-existent pollution control laws? :)

It is quite the ethnocentric view to believe United States is immune to global exploitation because of its so called "regulations"
ironslippers
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6/14/2015 7:15:05 PM
Posted: 1 year ago
Greyparrot has addressed a relative concern. When I brought the topic up I just wanted to express a paradox I often find myself pondering.
Why would a sovereignty abandon financial autonomy to another?
A very complex and broad topic I was not sure of the response I was looking for or would receive (that's why I brought it up).
I'm leaning towards the existential "the absurdity of finance".
Everyone stands on their own dung hill and speaks out about someone else's - Nathan Krusemark
Its easier to criticize and hate than it is to support and create - I Ron Slippers
slo1
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6/15/2015 7:24:10 AM
Posted: 1 year ago
At 6/12/2015 9:46:59 PM, ironslippers wrote:
Like how is it Japan is equal to China as USAs largest investor (looking at Japans gdp/debt ratio)? Wouldn't investing at home create higher local returns (not just financially but socially) and be easier to regulate. If each nation brought home investment/returns and payed off debt, would the countries still be in the same order internationally gdp/debt ratios.
I admit to being simple (note: JMK please talk to me that way):)

Japan's public debt can be financed at such low interest rates it is better for them to buy US Treasuries and get a higher interest rate. They would actually lose money if they sold their currency reserves and US Treasuries and applied them to their debt. They also like to keep currency reserve to manipulate the price of the Yuan, which in turn helps them with exports by keeping prices low to the world.

China is a very different beast. It's gov debt is low, but there are many gov owned industries very heavily in debt. It is a step closer to its industry in that it owns all the banks which lend to business. Rather than pushing out cash by buying US bonds from banks and other financial institutions like our Fed Reserve does, it just tells those banks to make more loans.

It is arguable on whether China should or shouldn't apply their assets in US Treasuries to its debt that is pushed out to the state owned companies, but they obviously feel they get a better return investing than paying down debt.

As far as private enterprise they may invest in foreign assets simply to diversify, safety, or chase the best possible return. Hands down the US gov bonds remain the safest investment and place to sock away money. Real estate is also a very tangible and safe bet if not bought during a bubble.
Diqiucun_Cunmin
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6/15/2015 8:03:52 AM
Posted: 1 year ago
At 6/14/2015 8:39:42 AM, Greyparrot wrote:
At 6/13/2015 9:29:20 AM, Diqiucun_Cunmin wrote:

If you're a manufacturing giant, would you prefer to invest in a factory where you have strict pollution control laws, high wages and high rent, or a place with low rent, low wages and so-lenient-as-to-be-non-existent pollution control laws? :)

It is quite the ethnocentric view to believe United States is immune to global exploitation because of its so called "regulations"

Sorry for the late reply. It must have got lost in my flooded notifications box again (it happens to polls regulars all the time).

Anyway... I never said anything about exploitation or whether the US is immune to it? Or even mention any countries for that matter?

I know I mentioned the pollution haven hypothesis in our last conversation, but not this one... I'm only demonstrating with an example why a firm would like to invest in another country.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
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6/15/2015 8:05:46 AM
Posted: 1 year ago
At 6/14/2015 7:50:39 AM, Greyparrot wrote:
At 6/13/2015 9:29:20 AM, Diqiucun_Cunmin wrote:
At 6/12/2015 9:46:59 PM, ironslippers wrote:
Like how is it Japan is equal to China as USAs largest investor (looking at Japans gdp/debt ratio)? Wouldn't investing at home create higher local returns (not just financially but socially) and be easier to regulate. If each nation brought home investment/returns and payed off debt, would the countries still be in the same order internationally gdp/debt ratios.
I admit to being simple (note: JMK please talk to me that way):)

If you're a manufacturing giant, would you prefer to invest in a factory where you have strict pollution control laws, high wages and high rent, or a place with low rent, low wages and so-lenient-as-to-be-non-existent pollution control laws? :)

Isn't his question the opposite of that example?

Firstly, I actually didn't even have China in mind when I wrote that; I had SE Asia...

Secondly, I wasn't really responding to the China and Japan investing in the US example, but his more general question, why a country would invest in another country...
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Contra
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6/15/2015 12:19:31 PM
Posted: 1 year ago
When countries engage in trade, there is an overall balance of payments. So the Chinese may have a trade surplus, and the United States a trade deficit, but these are totally offset by the United States financial account surplus, and the Chinese financial account deficit.

If we import more than we export to China, China will have a surplus of dollars. They can't use these dollars to invest in China, because China uses the yuan. So what does China do? They use their dollars, typically by buying private assets such as financial securities or physical capital (foreign direct investment, investing in the real estate market, etc.). China also uses its surplus of dollars to buy Treasury bonds, financing our deficits to a significant degree. These dollars flow to the United States, creating our financial account surplus that offsets our trade deficit.

So that's why countries invest in other countries, it is so that they can achieve (hopefully) a positive return on investment with their foreign currencies. At least this is how I understand the situation.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
ironslippers
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6/15/2015 4:24:41 PM
Posted: 1 year ago
At 6/15/2015 12:19:31 PM, Contra wrote:
When countries engage in trade, there is an overall balance of payments. So the Chinese may have a trade surplus, and the United States a trade deficit, but these are totally offset by the United States financial account surplus, and the Chinese financial account deficit.

Please correct me if Im wrong. The US has been running a trade deficit since 1976, the US has subsidized financial surplus through foreign investment and currency manipulation. Doesn't this raise the risk in US investment? The rest of the world currencies must be in quite precarious positions to view the US as low risk/high yield.

If we import more than we export to China, China will have a surplus of dollars. They can't use these dollars to invest in China, because China uses the yuan. So what does China do? They use their dollars, typically by buying private assets such as financial securities or physical capital (foreign direct investment, investing in the real estate market, etc.). China also uses its surplus of dollars to buy Treasury bonds, financing our deficits to a significant degree. These dollars flow to the United States, creating our financial account surplus that offsets our trade deficit.

Isn't the job of the IMF to facilitate these exchanges. Dollars to Yuan and Yuan to dollars?

So that's why countries invest in other countries, it is so that they can achieve (hopefully) a positive return on investment with their foreign currencies. At least this is how I understand the situation.

What would be the consequence of a bond bubble burst?
Everyone stands on their own dung hill and speaks out about someone else's - Nathan Krusemark
Its easier to criticize and hate than it is to support and create - I Ron Slippers
Contra
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6/15/2015 9:47:07 PM
Posted: 1 year ago
At 6/15/2015 4:24:41 PM, ironslippers wrote:
At 6/15/2015 12:19:31 PM, Contra wrote:
When countries engage in trade, there is an overall balance of payments. So the Chinese may have a trade surplus, and the United States a trade deficit, but these are totally offset by the United States financial account surplus, and the Chinese financial account deficit.

Please correct me if Im wrong. The US has been running a trade deficit since 1976, the US has subsidized financial surplus through foreign investment and currency manipulation. Doesn't this raise the risk in US investment? The rest of the world currencies must be in quite precarious positions to view the US as low risk/high yield.

We have been a trade deficit since around that period of time yes. I don't see how U.S. investments (outflow of financial capital) would raise the risk of U.S. investments... it should actually make U.S. investments more attractive because the lower relative demand would spur higher interest rates (and therefore higher returns on investment).


If we import more than we export to China, China will have a surplus of dollars. They can't use these dollars to invest in China, because China uses the yuan. So what does China do? They use their dollars, typically by buying private assets such as financial securities or physical capital (foreign direct investment, investing in the real estate market, etc.). China also uses its surplus of dollars to buy Treasury bonds, financing our deficits to a significant degree. These dollars flow to the United States, creating our financial account surplus that offsets our trade deficit.

Isn't the job of the IMF to facilitate these exchanges. Dollars to Yuan and Yuan to dollars?

The IMF does facilitate these exchanges, but their stock of foreign currencies is highly insignificant compared to the total flows of currency across international borders. The IMF would have to have incredible stockpiles of yuans if we are going to contain with our example.

So that's why countries invest in other countries, it is so that they can achieve (hopefully) a positive return on investment with their foreign currencies. At least this is how I understand the situation.

What would be the consequence of a bond bubble burst?

I am not entirely sure what the ramifications would be for the balance of payments for the pertaining countries. I do know that if the Chinese stopped investing a huge portion of their dollars in the United States, they would be losing value (through inflation). So the Chinese would either buy more American goods with their dollars or buy more American assets and securities, because even doing *nothing* with them, say saving their dollars... infuses the dollars into the American economy. The savings would simply be channeled into the investment spending of American borrowers through the financial system.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
THEBOMB
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6/15/2015 10:19:19 PM
Posted: 1 year ago
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)

Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account). The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
Diqiucun_Cunmin
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6/15/2015 11:07:32 PM
Posted: 1 year ago
At 6/15/2015 10:19:19 PM, THEBOMB wrote:
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)
Just a nitpick, but it doesn't have to be financial assets. Buying property, for example, is in the financial account, not the capital account.
Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account).
I think the foreigner setting up the factory would belong to the financial account as well. It's not a capital transfer but a direct investment.
The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
THEBOMB
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6/16/2015 6:49:49 AM
Posted: 1 year ago
At 6/15/2015 11:07:32 PM, Diqiucun_Cunmin wrote:
At 6/15/2015 10:19:19 PM, THEBOMB wrote:
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)
Just a nitpick, but it doesn't have to be financial assets. Buying property, for example, is in the financial account, not the capital account.

Yes; property is a financial asset.

Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account).
I think the foreigner setting up the factory would belong to the financial account as well. It's not a capital transfer but a direct investment.

The initial investment would fall under the financial account; the appreciating value of the factory over time would be the capital account (which accounts for ownership.) Capital is defined as future earnings. So, one buys future earnings now with finances, and gets the future earnings later (current financial liability, later/current capital asset which translates into financial assets if/when the factory is sold.)

The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
Diqiucun_Cunmin
Posts: 2,710
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6/16/2015 9:45:18 AM
Posted: 1 year ago
At 6/16/2015 6:49:49 AM, THEBOMB wrote:
At 6/15/2015 11:07:32 PM, Diqiucun_Cunmin wrote:
At 6/15/2015 10:19:19 PM, THEBOMB wrote:
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)
Just a nitpick, but it doesn't have to be financial assets. Buying property, for example, is in the financial account, not the capital account.

Yes; property is a financial asset.
o_0

Really? I didn't know that... Sorry, I'm exposing my own ignorance then.
Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account).
I think the foreigner setting up the factory would belong to the financial account as well. It's not a capital transfer but a direct investment.

The initial investment would fall under the financial account; the appreciating value of the factory over time would be the capital account (which accounts for ownership.) Capital is defined as future earnings. So, one buys future earnings now with finances, and gets the future earnings later (current financial liability, later/current capital asset which translates into financial assets if/when the factory is sold.)
So that would be considered a capital transfer to the owner's economy?
The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
THEBOMB
Posts: 2,872
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6/16/2015 10:12:52 AM
Posted: 1 year ago
At 6/16/2015 9:45:18 AM, Diqiucun_Cunmin wrote:
At 6/16/2015 6:49:49 AM, THEBOMB wrote:
At 6/15/2015 11:07:32 PM, Diqiucun_Cunmin wrote:
At 6/15/2015 10:19:19 PM, THEBOMB wrote:
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)
Just a nitpick, but it doesn't have to be financial assets. Buying property, for example, is in the financial account, not the capital account.

Yes; property is a financial asset.
o_0

Really? I didn't know that... Sorry, I'm exposing my own ignorance then.

To be a little clearer: the value of the mortgage, deed, etc. is financial. The property itself is physical.

Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account).
I think the foreigner setting up the factory would belong to the financial account as well. It's not a capital transfer but a direct investment.

The initial investment would fall under the financial account; the appreciating value of the factory over time would be the capital account (which accounts for ownership.) Capital is defined as future earnings. So, one buys future earnings now with finances, and gets the future earnings later (current financial liability, later/current capital asset which translates into financial assets if/when the factory is sold.)
So that would be considered a capital transfer to the owner's economy?

Capital is future earnings. So investing in capital now will, hopefully, yield larger financial returns later. Those finances can be used to do whatever really. The sale of capital from national A to national B would be financial (a Chinese firm buying a factory from an American company in China) as only ownership would be changing ad as such who receives the financial benefit from the capital. If the American company built a factory in China, that would be a capital transfer to China and a future financial transfer to the U.S. presumably larger than the capital transfer.

The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
Diqiucun_Cunmin
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6/16/2015 10:28:05 AM
Posted: 1 year ago
At 6/16/2015 10:12:52 AM, THEBOMB wrote:
At 6/16/2015 9:45:18 AM, Diqiucun_Cunmin wrote:
At 6/16/2015 6:49:49 AM, THEBOMB wrote:
At 6/15/2015 11:07:32 PM, Diqiucun_Cunmin wrote:
At 6/15/2015 10:19:19 PM, THEBOMB wrote:
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)
Just a nitpick, but it doesn't have to be financial assets. Buying property, for example, is in the financial account, not the capital account.

Yes; property is a financial asset.
o_0

Really? I didn't know that... Sorry, I'm exposing my own ignorance then.

To be a little clearer: the value of the mortgage, deed, etc. is financial. The property itself is physical.
Okay, lol. *recovers from shock*
Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account).
I think the foreigner setting up the factory would belong to the financial account as well. It's not a capital transfer but a direct investment.

The initial investment would fall under the financial account; the appreciating value of the factory over time would be the capital account (which accounts for ownership.) Capital is defined as future earnings. So, one buys future earnings now with finances, and gets the future earnings later (current financial liability, later/current capital asset which translates into financial assets if/when the factory is sold.)
So that would be considered a capital transfer to the owner's economy?

Capital is future earnings. So investing in capital now will, hopefully, yield larger financial returns later. Those finances can be used to do whatever really. The sale of capital from national A to national B would be financial (a Chinese firm buying a factory from an American company in China) as only ownership would be changing ad as such who receives the financial benefit from the capital.
Yep, I dig that.
If the American company built a factory in China, that would be a capital transfer to China and a future financial transfer to the U.S. presumably larger than the capital transfer.
But isn't that a direct investment in China, and therefore a Cr for China and a Dr in the US in the financial account?
The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
WAM
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6/16/2015 10:42:43 AM
Posted: 1 year ago
This is actually not that hard of an economic issue. The main reason is, of course, money. 'THEBOMB' got it quite right.

Lets take Germany as an example, the richest economy in Europe investing in Greece, one of the weakest. Why? Simple, by them upholding Greece and in a greater sense the European union they make a lot of profit, while not immediately, but in the future. Germany has export benefits upheld by the European Union and as such benefits from it and will invest, as it will profit them.

China on the other hand likes buying resource locations, such as iron mines in Australia. This helps them financially by being able to acquire resources cheaper than if they would buy the resource itself.

Countries like the US can outsource production of goods to countries like China, where production is cheaper and profits are vastly increased opposed to 'homeland' production.

Lastly many countries (sadly not all, Australia for example) take great consideration into their finances. They plan their economy many years ahead and invest, which concludes in debts and such. Just as a piece of useful knowledge, China may have a huge economic increase, they do sometimes achieve it though through useless products such as building whole 'cities' which don't get used. It increases the GDP though. And for China that itself is important. As other countries/people will invest on that premise alone.
THEBOMB
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6/16/2015 12:35:48 PM
Posted: 1 year ago
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)
Just a nitpick, but it doesn't have to be financial assets. Buying property, for example, is in the financial account, not the capital account.

Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account).
I think the foreigner setting up the factory would belong to the financial account as well. It's not a capital transfer but a direct investment.

The initial investment would fall under the financial account; the appreciating value of the factory over time would be the capital account (which accounts for ownership.) Capital is defined as future earnings. So, one buys future earnings now with finances, and gets the future earnings later (current financial liability, later/current capital asset which translates into financial assets if/when the factory is sold.)
So that would be considered a capital transfer to the owner's economy?

Capital is future earnings. So investing in capital now will, hopefully, yield larger financial returns later. Those finances can be used to do whatever really. The sale of capital from national A to national B would be financial (a Chinese firm buying a factory from an American company in China) as only ownership would be changing ad as such who receives the financial benefit from the capital.
Yep, I dig that.

If the American company built a factory in China, that would be a capital transfer to China and a future financial transfer to the U.S. presumably larger than the capital transfer.
But isn't that a direct investment in China, and therefore a Cr for China and a Dr in the US in the financial account?

At time t (since balance sheets change over time, this would be a snapshot):

On the US financial account sheet: negative the price to buy capital in China and a positive of earnings from capital due to the sale of the production from the capital -- which is in the form of exports from China and imports to the US (which hopefully rises over time);

On the Chinese financial account: negative the present value of future earnings from the capital (the finances are leaving the country) and a positive of the liquid assets used during construction of the capital (have to hire workers, buy materials -- presumably in China, it's more complicated if the materials are bought outside of China -- etc.)

On the Chinese capital account: positive the present value of the capital

On the American capital account: negative the present value of the capital

On the Chinese current account: positive exports from the capital

On the American current account: negative imports from the capital

I don't think I'm missing anything and in theory, they all should sum up to 0. The US gains from having greater financial assets flowing back to the US. China gains because there's more capital in China allowing greater exports. Also, in many instances, capital in China is owned by Chinese companies who lease exclusively to American corporations. A situation like that would change the scenario a bit.
Diqiucun_Cunmin
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6/16/2015 1:06:38 PM
Posted: 1 year ago
At 6/16/2015 12:35:48 PM, THEBOMB wrote:
Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account).
I think the foreigner setting up the factory would belong to the financial account as well. It's not a capital transfer but a direct investment.

The initial investment would fall under the financial account; the appreciating value of the factory over time would be the capital account (which accounts for ownership.) Capital is defined as future earnings. So, one buys future earnings now with finances, and gets the future earnings later (current financial liability, later/current capital asset which translates into financial assets if/when the factory is sold.)
So that would be considered a capital transfer to the owner's economy?

Capital is future earnings. So investing in capital now will, hopefully, yield larger financial returns later. Those finances can be used to do whatever really. The sale of capital from national A to national B would be financial (a Chinese firm buying a factory from an American company in China) as only ownership would be changing ad as such who receives the financial benefit from the capital.
Yep, I dig that.

If the American company built a factory in China, that would be a capital transfer to China and a future financial transfer to the U.S. presumably larger than the capital transfer.
But isn't that a direct investment in China, and therefore a Cr for China and a Dr in the US in the financial account?

At time t (since balance sheets change over time, this would be a snapshot):

On the US financial account sheet: negative the price to buy capital in China and a positive of earnings from capital due to the sale of the production from the capital -- which is in the form of exports from China and imports to the US (which hopefully rises over time);

On the Chinese financial account: negative the present value of future earnings from the capital (the finances are leaving the country) and a positive of the liquid assets used during construction of the capital (have to hire workers, buy materials -- presumably in China, it's more complicated if the materials are bought outside of China -- etc.)
Which BOP component is the bolded part? (Sorry, I can be pretty slow)
On the Chinese capital account: positive the present value of the capital

On the American capital account: negative the present value of the capital
What I don't get here is why these are considered transfers at all...

I mean it doesn't fit into any category of transfers that I'm aware of (forgiveness of liabilities, charitable donations of capital, etc.)
On the Chinese current account: positive exports from the capital

On the American current account: negative imports from the capital

I don't think I'm missing anything and in theory, they all should sum up to 0. The US gains from having greater financial assets flowing back to the US. China gains because there's more capital in China allowing greater exports. Also, in many instances, capital in China is owned by Chinese companies who lease exclusively to American corporations. A situation like that would change the scenario a bit.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

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THEBOMB
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6/16/2015 1:40:06 PM
Posted: 1 year ago
At time t (since balance sheets change over time, this would be a snapshot):

On the US financial account sheet: negative the price to buy capital in China and a positive of earnings from capital due to the sale of the production from the capital -- which is in the form of exports from China and imports to the US (which hopefully rises over time);

On the Chinese financial account: negative the present value of future earnings from the capital (the finances are leaving the country) and a positive of the liquid assets used during construction of the capital (have to hire workers, buy materials -- presumably in China, it's more complicated if the materials are bought outside of China -- etc.)
Which BOP component is the bolded part? (Sorry, I can be pretty slow)
On the Chinese capital account: positive the present value of the capital

China does not retain future earnings in this scenario. They are transferred outside of China.


On the American capital account: negative the present value of the capital
What I don't get here is why these are considered transfers at all...

I mean it doesn't fit into any category of transfers that I'm aware of (forgiveness of liabilities, charitable donations of capital, etc.)

We're talking about a national balance sheet. If capital is being formed in China for X, it can't be formed in the United States. The US is losing the opportunity to have capital. It's the opportunity cost (cost of the next most valuable thing.) The opportunity cost to the US of a company investing in China rather than the US is the investment which otherwise would have occurred in the US. For China, US financial assets are being reallocated to form capital in China.

There's also the possibility of a company liquidating capital (moving from the capital sheet to the financial sheet) in the US to form capital in China.
Contra
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6/16/2015 10:41:38 PM
Posted: 1 year ago
At 6/15/2015 10:19:19 PM, THEBOMB wrote:
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)

Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account). The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

I mean, I was taught that there are two accounts -- the financial account and the current account. But there are multiple ways to describe a dynamic situation such as trade.

So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

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Diqiucun_Cunmin
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6/16/2015 11:02:31 PM
Posted: 1 year ago
At 6/16/2015 1:40:06 PM, THEBOMB wrote:
At time t (since balance sheets change over time, this would be a snapshot):

On the US financial account sheet: negative the price to buy capital in China and a positive of earnings from capital due to the sale of the production from the capital -- which is in the form of exports from China and imports to the US (which hopefully rises over time);

On the Chinese financial account: negative the present value of future earnings from the capital (the finances are leaving the country) and a positive of the liquid assets used during construction of the capital (have to hire workers, buy materials -- presumably in China, it's more complicated if the materials are bought outside of China -- etc.)
Which BOP component is the bolded part? (Sorry, I can be pretty slow)
On the Chinese capital account: positive the present value of the capital

China does not retain future earnings in this scenario. They are transferred outside of China.
That wasn't really the answer I was looking for... I was asking which component it belonged to, i.e., out of the list with direct investment, portfolio investment, financial derivatives, etc.

On the American capital account: negative the present value of the capital
What I don't get here is why these are considered transfers at all...

I mean it doesn't fit into any category of transfers that I'm aware of (forgiveness of liabilities, charitable donations of capital, etc.)

We're talking about a national balance sheet. If capital is being formed in China for X, it can't be formed in the United States. The US is losing the opportunity to have capital. It's the opportunity cost (cost of the next most valuable thing.) The opportunity cost to the US of a company investing in China rather than the US is the investment which otherwise would have occurred in the US. For China, US financial assets are being reallocated to form capital in China.
Again, what I don't get here, is I don't see the transfer of ownership from the US to China... I know what o/c is; I don't know why it's considered a transfer.
There's also the possibility of a company liquidating capital (moving from the capital sheet to the financial sheet) in the US to form capital in China.
If they'd liquidated the capital in the US, then used the money for direct investments in China, why would the capital account be touched?
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
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6/16/2015 11:03:48 PM
Posted: 1 year ago
At 6/16/2015 10:41:38 PM, Contra wrote:
At 6/15/2015 10:19:19 PM, THEBOMB wrote:
There are three accounts:
1. Current Account: Goods (example: a shirt)
2. Capital Account: ownership of real investments (example: a factory)
3. Financial Account: ownership of financial investments (example: a bond - debt - or stock - equity)

Trade uses all three accounts. To import a shirt from another country (an entry in the current account), there needs to be a factory making that shirt in the other country which is owned by either a foreigner or a national (an entry in the capital account). The factory will need to issue debt which can either be bought by a foreigner or a national (an entry in the financial account).

I mean, I was taught that there are two accounts -- the financial account and the current account. But there are multiple ways to describe a dynamic situation such as trade.
The capital account and the financial account are components of the capital and financial account. So in the BOP, there are two accounts: the current account and the capital and financial account. Maybe your curriculum simplified the name of the capital and financial account to just financial account.
So, the US imports X from China. To import X, X needs to first be created (factories and other capital.) To build or create factories, something needs to have finances.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
THEBOMB
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6/16/2015 11:19:54 PM
Posted: 1 year ago
At 6/16/2015 11:02:31 PM, Diqiucun_Cunmin wrote:
At 6/16/2015 1:40:06 PM, THEBOMB wrote:
At time t (since balance sheets change over time, this would be a snapshot):

On the US financial account sheet: negative the price to buy capital in China and a positive of earnings from capital due to the sale of the production from the capital -- which is in the form of exports from China and imports to the US (which hopefully rises over time);

On the Chinese financial account: negative the present value of future earnings from the capital (the finances are leaving the country) and a positive of the liquid assets used during construction of the capital (have to hire workers, buy materials -- presumably in China, it's more complicated if the materials are bought outside of China -- etc.)
Which BOP component is the bolded part? (Sorry, I can be pretty slow)
On the Chinese capital account: positive the present value of the capital

China does not retain future earnings in this scenario. They are transferred outside of China.
That wasn't really the answer I was looking for... I was asking which component it belonged to, i.e., out of the list with direct investment, portfolio investment, financial derivatives, etc.

On the American capital account: negative the present value of the capital
What I don't get here is why these are considered transfers at all...

I mean it doesn't fit into any category of transfers that I'm aware of (forgiveness of liabilities, charitable donations of capital, etc.)

We're talking about a national balance sheet. If capital is being formed in China for X, it can't be formed in the United States. The US is losing the opportunity to have capital. It's the opportunity cost (cost of the next most valuable thing.) The opportunity cost to the US of a company investing in China rather than the US is the investment which otherwise would have occurred in the US. For China, US financial assets are being reallocated to form capital in China.
Again, what I don't get here, is I don't see the transfer of ownership from the US to China... I know what o/c is; I don't know why it's considered a transfer.

Not ownership, placement. The capital is being placed in China rather than in the US. Ownership is reflected in financial records.

There's also the possibility of a company liquidating capital (moving from the capital sheet to the financial sheet) in the US to form capital in China.
If they'd liquidated the capital in the US, then used the money for direct investments in China, why would the capital account be touched?

There would be less capital in the US and more capital in China.
THEBOMB
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6/16/2015 11:27:24 PM
Posted: 1 year ago
There would be less capital in the US and more capital in China.

For an individual company, they would have less capital in the US and more in China. Nationally, there would be more capital in China after all the investments are said and done.
Diqiucun_Cunmin
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6/16/2015 11:30:21 PM
Posted: 1 year ago
At 6/16/2015 11:27:24 PM, THEBOMB wrote:
There would be less capital in the US and more capital in China.

For an individual company, they would have less capital in the US and more in China. Nationally, there would be more capital in China after all the investments are said and done.

But 1) the US's amount of capital would be untouched and 2) there is no transfer of capital to China; there is only capital formation in China.
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
THEBOMB
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6/16/2015 11:34:14 PM
Posted: 1 year ago
At 6/16/2015 11:30:21 PM, Diqiucun_Cunmin wrote:
At 6/16/2015 11:27:24 PM, THEBOMB wrote:
There would be less capital in the US and more capital in China.

For an individual company, they would have less capital in the US and more in China. Nationally, there would be more capital in China after all the investments are said and done.

But 1) the US's amount of capital would be untouched and 2) there is no transfer of capital to China; there is only capital formation in China.

You're right. I concede. It's all on the financial books. A negative would only occur if someone was to say, destroy the capital.