Posted on 08/21/2004 11:10:31 AM PDT by Willie Green
For education and discussion only. Not for commercial use.
Blame the foreigners. That is a time-tested political tactic in America, and this year is no exception.
With the job outlook uncertain, protectionist winds are blowing. President Bush last week blasted European subsidies for Airbus, which has replaced Boeing as No. 1 in commercial jets. Sen. John Kerry has focused more of his fire on "Benedict Arnold CEOs," executives who send American jobs overseas.
Those campaign positions both reflect and obscure a reality that neither candidate shows much sign of addressing seriously, the large American trade deficit.
In going after Europe, Bush may be on to something. The United States' trade position with Europe has deteriorated almost as much as its position with China since the elder George Bush was in the White House. But no one claims cheap labor is Europe's secret.
In 1992, the United States had a trade surplus of almost $9 billion with the 15 countries that formed the European Union until it expanded earlier this year, and a deficit of $18.3 billion with China. The latest figures, for the 12 months through June, show a deficit of $99.8 billion with the EU 15 and $138.7 billion with China.
Between them, the deteriorating trade positions with China and the EU 15 account for 46 percent of the overall deterioration in the U.S. trade balance since 1992.
The differences are that Europe tends to supply higher quality things -- machine tools and Mercedes Benz autos, for example -- and that it has not been piling up huge amounts of Treasury securities. The numbers for last week show China has $164.8 billion in Treasuries, second only to Japan's $689.3 billion.
In the second quarter, the U.S. trade deficit exceeded 5 percent of gross domestic product, a record amount. That would sound alarm bells in other countries, but the United States sails along, buying whatever it wants and paying with newly printed dollars.
Some argue the trade deficit is a sign of strength. It must be made up by foreigners buying dollar-denominated assets, and those purchases supposedly show how foreigners crave American investments.
But during the first half of this year, foreigners put $270.5 billion in Treasuries, twice what they put in higher yielding but riskier corporate bonds. They sold American shares. So much for wildly attractive investments.
Many of those Treasury purchases are less than voluntary. Central banks in China and Japan buy Treasuries not because the rates look good but as a way of supporting the dollar to maintain American demand for their exports.
Now the Federal Reserve is starting to worry about the trade deficit. It was the subject of a long discussion at the June meeting of the Open Market Committee, including a number of research papers that have so far not been made public. According to the minutes, "The staff noted that outsized external deficits could not be sustained indefinitely," but it did not forecast when the end would come.
Steve Roach, the chief economist of Morgan Stanley, suggests the end will be no fun. When it happens, he says, the first casualty will be the value of the dollar. Then foreigners owning all those Treasuries will demand to be compensated for the currency risk, causing real interest rates to rise. That will lead to strains for highly leveraged consumers and to a cutback in consumption, which will in turn help bring down the trade deficit.
Just how to bring that about with as little pain as possible might be a reasonable subject of discussion for the presidential campaign. But it will not be. Neither party wants to focus on such unhappy prospects.
Trade deficit can be explained in one word: Oil
As long as the US is dependent on foriegn oil, terrorist and radical states will have a stranglehold on the US economy, and will be able to determine the outcome of US elections. That is the scariest thing about this years election.
Aren't our choices limited by WTO agreements?
It's amazing that they're falling for it.
No it's not.
They take those paper pictures and exchange them for different paper (T-bills) issued by the Treasury to finance Dubya's deficit spending.
Then they siphon away our taxdollars as interest payments.
In the long-term, this will make our money worthless.
Then they'll foreclose on the debt and take possession of hard assets.
My guess is they'll probably want Alaska first.
Lotsa oil, few people to feed.
That can't happen and you know it. If they don't want dollar-denominated assets, their alternative is to quit exporting to us.
They'll do that if we refuse to give them Alaska.
Many of our citizens will go naked and starve before we can rebuild our capacity for production.
In addition, their "pictures on paper" will be as worthless as those of foreigners. Those who treat this as some sort of clever con that foreigners are falling for never address what will happen after the con. We will destroy the credit and financial credibility of the United States and the dollar will likely be replaced as the primary world currency. That will be quite a legacy for us to leave the next generation.
Crips! If we all ran our household budgets like our government is doing, we'd all be homeless, pushing shopping carts down Main Street.
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