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The Health of Nations

UNFINISHED WORK!

The Nation

How healthy is a nation? The Nation is an Economic Domain, not an Economic Body that contains a number of types of economic bodies;
each of which is examined under the links above. Since the national currency is the responsibility of the central bank this is dealt with under that heading.

They will be examined In the context of the Monetary Accounts;
  • money current account the amount of money.
  • money credit/debt account the amount of money lent and borrowed.
  • material current account the monetary value of things held.
  • material credit/debt account the monetary value of things lent and borrowed.
and in consideration of the actual statistics available.

The Nation is an Economic Domain, not an Economic Body. So when considering figures for the nation these are aggregates (i.e. totals) for all the economic bodies in the nation which is a geographic region.

US $ are used in trade outside the USA so the $ economy is wider than the US geography. Thus the $ economy is not the same as the US economy, one being defined by the currency, the other being defined by the geography.

Now since for any arbitrary division of an economy into two, the flow of money across the boundary should be balanced, i.e. close to 0.

Choose a currency and divide its economy into two the boundary being the geographic boundary of the nation, its borders. Clearly one aspect of the economic health of that nation may be examined in terms of the flow of money in and out of it.

The accounts will consider only transactions involving the national currency, however this will include the sale or purchase of foreign currencies but they will be seen as material assets, instead of financial assets.

Unfortunately the information required to establish a simplified aggregate account is dispersed over many data sources and statistical distributions for the bodies in the nation are hard to find. A reminder of the four accounts;
  • money current account
  • money credit/debt account
  • material current account
  • material credit/debt account

The Monetary Accounts

See the Monetary Accounts for an explanation.

Money Current Account

The money current account must show the amount of money held in each currency and the terms that have and will change those amounts over time.

The amount of money held by the nation in both domestic and foreign currencies - ? The national debt/credit

The transactions that have changed the amounts over the year can be found in the balance of payment accounts, but they only reflect the year they cover without any clear representation of future payment obligations.

In the Balance of Payments Current Account;

  • Credit denotes entries from exports, primary income receivable, transfers receivable.
  • Debit is used to record entries for imports, primary income payable, transfers payable,
In the Balance of Payments Capital Account;
  • Credit denotes entries from disposals of nonproduced nonfinancial assets.
  • Debit is used to record entries for acquisitions of nonproduced nonfinancial assets.
In the Balance of Payments Financial Account;
  • Credit - an increase in an asset requires a positive entry, a decrease in a liability requires a negative entry.
  • Debit - an increase in a liability requires a positive entry, a decrease in an asset requires a negative entry.

Money Credit/Debt Account

The money credit/debt account must show the amount of money lent and borrowed in each currency and the terms that have and will change those amounts over time, (Risk and Yield should be known.)

The amount of money lent and borrowed by the nation in both domestic and foreign currencies -  Money and material are put together in the Net international investment position = domestically owned foreign assets - foreign owned domestic assets. Sadly wikipedia seems up the spout!!!!!

Does this only include capital assets or debt also.





Money owed to the nation is put down as an asset and money owed by the nation is put down as a liability. The Balance of Payments Financial Account  not only includes money borrowing and lending as required but also investments in shares in enterprises and monetary gold, Special Drawing Rights on the IMF, foreign exchange assets (currency, deposits, and securities), and other claims. All these other items have variable price and so vary their monetary value! They should be included in the Material Credit/Debt Account!

In the Balance of Payments Financial Account;
  • Credit - an increase in an asset requires a positive entry, a decrease in a liability requires a negative entry.
  • Debit - an increase in a liability requires a positive entry, a decrease in an asset requires a negative entry.

[[TODO check that fixed maturity instruments are included in this account and how repayment terms are detailed?]

Material Current Account

The material current account must show the monetary value of things held of each type and the terms that have and will change those amounts over time.

The monetary value of things held by the nation in both domestic and foreign currencies - ?

The transactions that have changed the amounts over the year can be guessed to some extent if we assume that transactions in the Balance of Payments Current Account correspond to materials that are consumed and transactions in the Balance of Payments Capital Account correspond to materials that last. This is however a complete presumption.

Material Credit/Debt Account

The material credit/debt account must show the monetary value of things lent and borrowed of each type and the terms that have and will change those amounts over time. (Risk and Yield should be known.)

The monetary value of material things lent and borrowed by the nation in both domestic and foreign currencies - ?

Some of the transactions that changed the amounts lent and borrowed can be found in the Balance of Payments Financial Account but since it also includes money borrowing and lending it is a problem.

The Balance of Payments

A positive balance of payments may be a good sign but without knowing the material side, what has been sold or for how much, it can be deceptive!

Similarly a negative balance of payments may be a bad sign but without knowing what has been bought or for how much, it can be deceptive!

See more on the Balance of Payments click the link.




(C)2010 Tom de Havas. The information under this section is my own work it may be reproduced without modification but must include this notice.










Loans at the end of the supply chain will increase demand and lead to inflation. These loans will be repaid by reductions in demand later on.

Loans at the beginning of the supply chain will increase supply and lead to deflation. They will be paid back by money earned at the beginning of the supply chain.

Clearly;
  • if the amount of money bid increases or the amount of things offered decreases there will be market shortages or price inflation,
  • if the amount of money bid decreases or the amount of things offered increases there will be market surpluses or price deflation.

  • Money current account
  • Money credit/debt account
  • Capital current account
  • Capital credit/debt account






Notes

Second order money, treasuries and any other tradable claims. If they are traded for anything but first order money they expand the money supply.

First Bubble
Marx said that the working classes could never have wealth because they would always have enough children to consume it.
Now this has changed to housing!



When asked to comment on the crisis, Greenspan spoke as follows:[132]

    The current credit crisis will come to an end when the overhang of inventories of newly built homes is largely liquidated, and home price deflation comes to an end. That will stabilize the now-uncertain value of the home equity that acts as a buffer for all home mortgages, but most importantly for those held as collateral for residential mortgage-backed securities. Very large losses will, no doubt, be taken as a consequence of the crisis. But after a period of protracted adjustment, the U.S. economy, and the world economy more generally, will be able to get back to business.





Second Bubble
The credit crisis is also a debt crisis as debts with high attached risks were sold as debts with low attached risks and thus overvalued making banks look solvent.


Debt Securities, risk trading.

Value of a contract can be bubbled making it look as though there is more value than there really is. These are paper bubbles.



Information

UNFINISHED TODO Here I need links to balances of payments, debts and deficits, bonds outstanding and other forms of debt. Other assets held.






The Money Accounts

See the Money Accounts for an explanation.

Money Current Account

The money current account must show the amount of money held in each currency and the transactions that terms that have and will change those amounts over time.

Money Credit/Debt Account

The money credit/debt account must show the amount of money lent and borrowed in each currency and the transactions that terms that have and will change those amounts over time, (Risk and Yield should be known.)

Material Current Account

The material current account must show the monetary value of things held of each type and the transactions that terms that have and will change those amounts over time.

Material Credit/Debt Account

The material credit/debt account must show the monetary value of things lent and borrowed of each type and the transactions that terms that have and will change those amounts over time. (Risk and Yield should be known.)