Dark Matters

Submitted by Rich Toscano on February 14, 2006 - 10:58am

This post may only appeal to those among you who are really into the global finance aspect of things, but here goes. A couple sites I read have recently discussed the "Dark Matter" theory that's become all the rage. The very short version of this theory is that since the US makes a net profit on its foreign investments, it must actually be a net creditor, instead of a net debtor as everyone thinks. The dark matter in question consists of those apparently unmeasurable assets that turn our national balance sheet positive.

My man Tim has put together a fantastic overview of financial dark matter over at The Mess. This is really the best survey of the topic I have seen yet, so check it out if this type of thing interests you.

Another online friend has recently written about the dark matter theory as well. His name is John Rubino—he wrote a great book on the housing bubble and now has a website dedicated to discussing what he sees as the inevitable collapse of the US dollar. Despite his gloomy economic views, John is the nicest guy you could hope to meet, and he's a talented writer as well. So grab a fistful of Prozac and head over to his website to read the article entitled Worse Than It Looks.

What's with all the links to other sites? It's a new plan I'm working on to outsource all my content—I figure if it's good enough for the US economy, it's good enough for the Econo-Almanac. I'm just trying to get my hands on some of that Dark Matter!

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Submitted by NotARocketScientist on February 14, 2006 - 6:11pm.

Magic pixie dust!

Here's my favorite quote:

"The trade statistics are terrible at tracking cross-border flows of intellectual property. For example, when Intel sets up a chip fabrication plant in Ireland, that country reaps the benefit of Intel's designs, and all of Intel's accumulated wisdom about how to run a fab successfully. In effect, a massive amount of intellectual property has been exported to Ireland, without showing up in the trade statistics at all.

"These massive and unobserved exports of intellectual property--"dark matter"--imply that the U.S. is actually running a much smaller current account deficit than the official data shows."

Um, wait... Isn't this a little like saying that when Julius and Ethel Rosenberg gave the plans for building a nuclear bomb to the Soviets, it made us stronger because in exporting our intellectual property they created in an unaccounted for trade surplus?

And to think -- we executed them.

Thanks for sharing, Rich.

Submitted by marinite on February 15, 2006 - 4:24pm.

What really chaps my hide with this article is that the author talks as if this "knowledge economy" garbarge is something new. Like, so there was no creativity, or marketing, or training, or R&D, etc before? Give me a break. What happened is that there was all this knowledge stuff on the one hand and production etc on the other. When the later fell away all we were left with was the former so they are going to talk it up. Prozac indeed!

Submitted by NotARocketScientist on February 15, 2006 - 4:58pm.

I agree. It's like when they suddenly started quantifying "good will" and allowing S&Ls to include it on their balance sheets as a tangible asset -- just before the S&L collapse.

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