Indebtedness and mercantilism

Abstract

In a closed economy, the growth of the GDP is equal to the net indebtedness (the increase of indebtedness) of it agents from one period to another, which allows current demand to be greater than the income of the preceding quarter. In an open economy, we must add to that the net indebtedness of the totality of foreign agents in operation: the currencies corresponding to the foreign trade balance. Depending on the sign of these two kinds of net indebtedness, positive or negative, a classification of countries can be made: mainly mercantilist countries that enjoy a foreign surplus, on the one hand, and 'Keynesian' countries running a deficit, whose growth is founded upon domestic demand, on the other hand

Finance capitalism: A look at the European financial accounts

“…For Italy Spain and Belgium there was some correlation between the expansion of the financial assets/GDP ratios and the net investment rate during the increasing phase of the cycle in the mid 2000-2010, possibly driven by residential price inflation particularly in Spain where the net investment ratio started from a very high level in 2000, however the net investment rate followed the financial assets / GDP ratios up to 2007 and then declined dramatically with the crisis. Unsurprisingly, countries such as Germany, Belgium and the Netherlands, which usually generate external current account surpluses, have been improving continuously their financial net worth, while others such as Italy, Spain and to a lesser extent France, that tend to have current external account deficits, have seen their financial liabilities growing faster than their financial assets (see Antoine Brunet 2009;Jean-Paul Guichard 2009). Overall, for EU27 and the Euro Area, the increase in financial liabilities slightly exceeded that of financial assets over the period, and went together with a decline in the rate of accumulation of fixed assets assets by 3-4% points of GDP, indicating a strong drop of the "marginal efficiency of investment" as perceived by the private sector, implying divergent expectations in the financial sphere and in the real economy, a symptom but also a possible cause of the crisis.…”