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Thomas L. Hutcheson's avatar

Can't be explained too many times.

You might add starting in "equilibrium" and changing something, like a larger budget deficit. I'm sort f allergic to cultural explanations, "Americans are consumers."

Making it a story of a response to a policy change is more interesting and in this case you get an additional effect. The higher deficit policy not only slows growth and creates a trade deficit, but also favors non-traded goods and services production over traded goods and services production.

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Ben Mathew's avatar

"Our habit of spending rather than saving means that we don’t save enough to fund all the potential investment in the U.S. As a result, there are attractive investments in the U.S. just waiting to be funded."

One discordant note to this is that the earnings yield (the earnings/price ratio) of US stocks has been low relative to foreign stocks. Maybe it's because US companies can reasonably be expected to grow their earnings faster than foreign companies. But it could also be that people are over-investing in the US, driven perhaps by high historical returns or the glamor of the tech sector. Hard to know for sure.

Doesn't impact the overall explanation you. People do find US investments attractive for some reason. Why they are so attractive is less obvious.

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