There is a good speech from Federal Reserve Board Governor Gramlich on the subject of our twin deficits and their interrelationship with each other and with our external debt situation.
Posted on 08/13/2004 6:00:25 AM PDT by Jordi
WASHINGTON (Reuters) - The U.S. trade deficit widened much more than expected in June, hitting a record $55.8 billion dollars as the biggest drop in exports in nearly three years combined with record imports, the government said on Friday. Wall Street economists had expected the deficit to widen, but looked for a gap of just $47 billion. In its report, the Commerce Department also revised May's trade shortfall to $46.9 billion from the previously reported $46.0 billion.
The department said exports fell 4.3 percent to $92.8 billion in June, the biggest decline since September 2001 and the weakest performance since February.
At the same time, imports climbed 3.3 percent to an all-time high of $148.6 billion, partly reflecting a run-up in oil prices.
Crude oil prices hit $33.76 a barrel, according to the department's measure, the highest price since March 1982. The quantity of crude imported also rose to a record level.
While other recent data had led economists to expect an upward revision to the government's measure of second-quarter economic growth, the trade data was likely to lead them to lower their sights.
In its first snapshot of the second quarter, the government said U.S. gross domestic product advanced at a 3 percent annual rate, a sharp slowdown from the swift 4.5 percent pace at the start of the year.
The trade report showed the politically sensitive trade gap with China widened to a record $14.2 billion as exports eased and imports soared to an all-time high. U.S. manufacturers and labor groups complain that Beijing's policy of holding the value of its currency, the yuan, steady against the dollar has given it an unfair trade advantage.
The Bush administration has claimed it is making progress getting China to move toward a more flexible currency regime, but Democrats want to ratchet up the pressure with a trade investigation.
The report also showed the U.S. trade gap with Mexico reached a record.
For the first half of the year, the trade gap came in at $287.7 billion, putting it well ahead of the same period last year and on track to break last year's record $496.5 billion.
I don't get it? With everyone unemployed or flippin burgers, just who's doing all this buying of imported consumer goods? I would think it's overflowing on the docks with no place to put it?
Good grief! And this is supposed to be our fault? Maybe, just maybe,(sounds crazy, I know) other countries aren't exporting the number of US goods as we expected because their economies are (still) in the you-know-what.
I couldn't tell. Are you being sarcastic?
If you bought gas/oil or even products at Walmart, you just bought imported consumer goods.
A better question would be is who is financing our twin deficits?
We, as a country, have lots of money to spend.
You mean paper, I think. The FED's printing machines are running at full cylinders. The treasury is printing debt like crazy. OK until it works.
Those are just our exports. Our trade balance has been increasing ever since the 90s. Our production has been switching to a services oriented economy, and that means we're still making lots of money, but our exports are dropping and our imports are increasing.
I'm not sure if the trade deficit includes overseas profits of American corporations. I doubt it. So, as long as we as a nation have an increasing GNP (Gross National Product), then we don't have a problem. The GNP has to grow faster than the trade deficit. There has to be a flow of money into our economy from overseas, and that doesn't necessarily have to come from exports. It can come from foreign investments.
By increasing I mean the trade deficit has been increasing.
Looking at the acceleration here, we appear to be on track to create $600 billion in new red ink this year on trade. Along with the larger than expected fiscal deficit, we could go over $1.2 trillion of new debt formation in a single year.
No it doesn't: It's just the trade of material goods and immaterial services.
"There has to be a flow of money into our economy from overseas"
Good points. But you should add a conclusion: 25% of the outstanding shares traded at the NYSE and the NASD are owned by foreign residents, hence they take part to the party of US corporations' profits. By reverse just 15% of the shares listed on foreign exchanges are owned by US residents. And those foreign listed companies profit A LOT selling in the US directly or through their subsidiaries.
How is a trade deficit "debt"??
US based Industry produces goods and sells them overseas (exports). These goods are paid for by the buyers (no debt)
US based Industry buys goods from foreign Producers (imports) these goods are paid for by the industry / consumer. Again no debt.
The "deficit" is nothing more than the negative diffference of the two. When we have a trade deficit more money is flowing out of the US (and becomes "untaxable"). In a trade surplus - more money flows in and becomes taxable.
For the consumer and the industry there is no negative consequence to either side (assuming no jobs are lost due to lack of [affordable] domestic products).
Only the FedGov is worried about the "deficit" becuase it means less tax revenue.
So, what was the point of depressing the dollar? Or has that just not caught up with our exports (order cycles)?
Amount of shares of US companies whose owenership is (directly or indirectly) of non-US residents: 3.5 trillion $
Amount of shares of non-US companies owned ,directly or indirectly, by US residents : 2.3 trillion $.
Figures are rounded (I go on memory) a referred to the end of 2003. More precise data would be welcomed.
I give you a (simplified) example. You know Japan has a trade surplus VS. the United States. So Japanese companies sell in US and are given US dollars. Then the Japanese companies change those dollars for yens, because they have to pay Japanese workers, taxes to the government of Japan and so on. But at this point the yen tends to go higher and the Japanese companies and goverment get worried because it could hurt their exports.
So the Japanese goverment changes some yens and buys ,say 10 billions of US$. With those dollar it goes to a bond auction in the US.
Result: actually in the coffers of the Japanese goverment are stashed some 700-800 billion $ of US goverment bonds,agency bonds and who knows what else.
There is a good speech from Federal Reserve Board Governor Gramlich on the subject of our twin deficits and their interrelationship with each other and with our external debt situation.
Your example still doesn't explain the "debt". If the japanese "buy" bonds - that is an investment in the US.
If the US did not want the investment (i.e. it doesn't need the money) it is under no obligation to "buy" the Dollars the Japanese are "selling".
Sorry, I missed the last passage. Since in the last three years more than 50% of the newly issued US government bonds were bought by foreign institutions/governments, it's reasonable to say that interest rates would have been much higher without those buyers. Want cheap money? Need foreign buyers of US debt. Don't have /don't want foreign buyers? Then who would fund federal deficits,state deficits,mortgages,consumer loans.....
Well then, it seems to me that it would be in Japan's interest to keep a level playing field, so to speak.
This is one of the big reasons -- but, obviously not the only reason -- the Saudi announced they were going to increase the production of crude, thereby lowering the price.
To wit:
-The price of oil remains higher than free-market indicated less gets bought and/or used; production get cut back; the locomotive-like US economy throttles back and other countries follow suite.
-This threatens Saudi investments, a vast majority of which are in the US. And this, in turn, effects their bottom line.
In short it makes no sense to "begger thy neighbor".
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.