What’s Wrong With Jim Rogers’ Comment?
Paul Krugman, the award-winning economist and op-ed columnist for the New York Times, wrote the following yesterday:
After my talk in Seoul, I participated in a panel discussion on The Future. The summary doesn’t mention it, but I made notes on a comment by Jim Rogers, who was all “the West is in decline, everything’s going to Asia.” He was asked whether he was predicting that capital will start flowing into Asia — which he certainly seemed to be implying — and responded
“Well, capital has already been flowing into Asian economies, as you can see by the fact that they’re the world’s biggest creditors.”
Your homework assignment is to explain — in English — what’s wrong with that sentence.
I didn’t see anything wrong with Jim’s response. Then again, that could be why Dr. Krugman writes for the New York Times and I have this blog. Any takers?
Source:
“Jim Rogers makes my head hurt”
Paul Krugman
New York Times, October 15, 2009
October 16th, 2009 at 10:58 am
Duh. The fact that they are “creditors” means they have been lending money out of their country, not bringing in investment money by borrowing.
October 16th, 2009 at 2:55 pm
Mitch,
The purchase of goods using credit is bring financial capital into Asia in exchange for goods into United States. Who has the capital? Asia does. Once US consumes the goods, its gone forever. But Asia has the financial capital.
Thanks.
October 16th, 2009 at 9:19 pm
I provided an explanation for Krugman in his comment section, but it was not approved for display (not sure why, I was perfectly polite).
Krugman, as always, is using his textbook-oriented definitions and ideals. There is nothing wrong with Rogers’ statement. Krugman’s interpretation is incorrect. He is taking the term ‘creditor nation’ as meaning ‘a nation that has invested more resources in other countries than the rest of the world has invested in it’, which is not Rogers’ point. Roger only means that Asian economies are not debt-ridden like the United States, who is a ‘debtor’, but are instead in the position of lenders (‘creditors’).
Krugman: Keep insisting on those negative interest rates, buddy. More debt growth and easy money will surely get us out of a deflationary recession caused by excessive debt growth and easy money.
Investorazzi: Love your site, keep it up!
October 17th, 2009 at 5:26 am
Mitch’s right.
I feel Krugman is just playing on the semantics.
Creditors means capital should be flowing into the debtors.
But like what Tony says, in the end, the capital have to flow back to the creditor unless debtor goes bankrupt. Do you see a normal bank getting poorer lending money?
October 19th, 2009 at 10:15 am
Mitch is right. Jim Rogers’ sentence is wrong by definition. Indeed, on balance, capital is flowing from cash-rich Asia to finance the budget hole in the U.S.
October 22nd, 2009 at 2:40 pm
Thanks for all the comments— and compliment.