View Full Version : The Mystery Of The Missing $2.9 Trillion

10-29-2007, 08:54 AM
The mystery of the missing $2.9 trillion
Economists scour the US to find out why we're more in debt than the Department of Commerce says we are.


By David R. Francis | columnist
from the October 29, 2007 edition

Like most people, economists love a mystery – especially if it involves not a missing person but a missing $2.9 trillion in United States debt.

That's $2.9 with 11 zeros after it.

Some words of explanation: Every quarter the Department of Commerce comes up with the US "International Investment Position." At the end of 2006, for instance, the US had a net negative position – by this measurement of international assets and liabilities – of $2.6 trillion. In other words, the country is by far the world's biggest debtor nation.

A quarter century ago, the US was the world's largest creditor nation.

The economists at Commerce count American-owned private assets in foreign nations (plants, equipment, retail outfits, property, corporate stocks and bonds, etc.), US official international reserves (gold, special drawing rights, foreign currencies), and other US assets abroad. The measurements get complicated. Then these economists count what foreigners own of American assets, looking at the same list of assets.

Subtracting the value of American international assets from what foreigners own of American assets, they come up with how much Americans are in debt to other nations and their peoples.

But if you look at the current account of the US balance of payments, which measures primarily the balance of trade, and also flows of interest and dividends, foreign aid, and other international transfers, the US should be far deeper in hock – $2.9 trillion more over the years from 1990 through 2006 than the official $2.6 trillion. Every month, the Commerce Department has reported huge deficits in trade and the broader current account. These deficits have to be financed somehow by foreigners, and so the US should be piling up its international debts in grand style.

Last year the US international deficit was running at a level equivalent to 6.5 percent of our gross domestic product, the nation's total output of goods and services. In a sense, Americans were living 6.5 percent better than they would if they weren't putting on the national tab, in effect, so many toys, shirts, computers, etc.

"Why aren't we more indebted?" asks Barry Bosworth, an economist at the Brookings Institution in Washington.

One related mystery is that American investments in foreign nations earn a much higher rate of return than do the investments by foreigners in the US.

"Why?" asks Mr. Bosworth in a working paper written with Susan Collins of the Gerald Ford School of Public Policy in Ann Arbor, Mich., and a graduate student, Gabriel Chodorow-Reich.

One-third of the gap in the return on investments can be attributed to US corporations reporting "extra" income in low tax jurisdictions of their foreign affiliates, the National Bureau of Economic Research paper finds. For example, Microsoft sells its software in foreign countries from an affiliate in Ireland – after making some changes in the software, says Bosworth. There, it pays only a 10 percent tax on its corporate profits, rather than the 38 percent corporate rate in the US. Other US firms set up affiliates in such tax havens as Barbados, the Bahamas, and Bermuda.

US firms are "quite aggres­sive" in taking advantage of such tax havens, notes Bosworth. It probably means that these companies avoid billions of dollars in taxes that otherwise would go to Uncle Sam. It also distorts the official balance-of-payments figures. "The data are very bad," says Bosworth.

Another economist intrigued by this international investment mystery is Pierre-Olivier Gourinchas of the University of California, Berkeley. He finds that the reason the US is earning so much more on its foreign assets than it is paying on its foreign liabilities is partly because US investors often take more risk and thus get a higher return. The American money goes into foreign direct investment (plant and equipment, etc.) and into foreign stock, for example. Many foreigners, especially central banks, tend to be more cautious in choosing American investments. They buy ultrasafe US Treasuries or relatively safe bonds issued by US corporations, for instance. "The US offers nice, liquid, safe investments," says Professor Gourinchas. The risk of default can be low.

The US is an entrepôt, says Jane D'Arista, of the Financial Markets Center, Philomont, Va. That is, it takes in savings from the world at relatively low cost and invests some of that money abroad at a higher return.

There's more to the mystery than that, however. One advantage for the US is that the dollar is the primary currency used in international reserves of other nations and for invoicing international trade and investment, such as for oil and other commodities.

So when the dollar loses value, foreign holders of dollar assets lose on their dollar investments. Almost all US foreign liabilities are in dollars and about 70 percent of US foreign assets are in foreign currencies. In what Gourinchas calls an "eye-catching, back-of-the-envelope calculation," a 10 percent depreciation of the dollar represents a transfer of 5.3 percent of US GDP from the rest of the world to the US. America's GDP is currently $13.7 trillion, and the dollar is down 20.6 percent since 2002. So foreigners have – in effect – given the US about $1.3 trillion.

It's not really that simple, emphasizes Gourinchas. Nonetheless, the US has had a free lunch.

10-29-2007, 06:47 PM
When looked at closely, this is the death knell of the good ol' US of A.

10-29-2007, 11:49 PM
Shit like this makes me think economics is nothing but voodoo.

10-31-2007, 08:36 PM
It is a well kept secret that insurance companies are not required to account for the source of money to pay claims.

Larry Silverstein's settlement for the WTC destruction of 9/11 was fraudulent. He received much more than the appraised value of the buildings. Why did the insurance companies not prosecute Silverstein for fraud? It wasn't necessarily insurance company money used to pay the settlement. http://www.911blogger.com/node/8886

No regulatory agency oversees that insurance claims are actually paid with insurance company money. Insurance companies accept embezzled money to pay claims. The embezzled money cannot be traced to its original source. Here is a documented example. From: http://www.mackwhite.com/Yogurt1.html
"Of all the days, of all the almost 3000 days that had passed since these girls murders, APD chose the hour after a San Antonio jury convicted the Brice group of fraud. $20 million disappeared during the same time frame that the $12 million 'insurance' settlement appeared. [Eric Moebius is referring to the settlement for the families of four girls murdered at Brice Food’s I Can’t Believe Its Yogurt store]

"And this so-called settlement has always been suspect. Extremely suspect. What insurance company pays for the criminal conduct of third parties? How was Brice Foods responsible? There was no 'murderer in hand.' As a result, no one act or omission could be identified as having 'caused' the murders. There is no insurance liability, no causation."

Life insurance proceeds are not immune from the money laundering scheme.

"FM Properties, an entity represented by [Lawyer M] of Austin, has experienced the murders of 26 of its employees in Indonesia, with all murders taking place on FM sites or being conducted in trucks or shipping containers owned by FM Properties. Even these murders can be 'insured' here in Texas, allowing money to be downloaded through death claims that take place half a world away."

2.3 trillion was missing from the Dept of Defense before 9/11. Donald Rumsfeld claimed the records were destroyed in the 9/11 Pentagon attack. One way this money could have disappeared without a trace is through insurance claims.

From, The Bar, Insurance Fraud and Murder by Eric Moebius:
”If anyone thinks these reserve fraud transactions are a once in a while event, they are tragically mistaken. Reserve fraud is an industry and it has taken a firm grip in both the state and federal courts. The amount of capital flowing through these reserve fraud schemes may soon dwarf the capital that disappeared through the S&L crisis. Reserve fraud creates a huge and spiraling demand for pirated catastrophic injury claims and explains why the Texas State Bar is so well organized at the state and county hospitals where it is illegally picking up referrals of severely injured patients. Tragically, the Bar's intent is to subsequently defraud the illegally referred plaintiffs by separating them from their claims in order to free those claims up for the reserve fraud transactions. But add to this tragedy the fact that there is an enormous body of evidence that conclusively demonstrates that this almost insatiable demand for the catastrophic claim has resulted in the use of intentionally induced catastrophic claims; intentional injuries and murders conducted through the use of over-insured vehicles or on overinsured premises. As a result, we are seeing multiple arsons and multiple murders.”

9/11 was multiple arsons and multiple murders on a grand scale. The WTC collapses were the result of alleged acts of war by alleged third parties. Larry Silverstein's claims for the WTC could have been successfully denied .

10-31-2007, 08:44 PM
Wow man, nice post. Welcome.

10-31-2007, 10:14 PM
Donald Rumsfeld claimed the records were destroyed in the 9/11 Pentagon attack .

I don't think I've read that before. Do you have a link?

11-01-2007, 12:55 AM

I feel smarter now for having read that.