U.S. trade deficit soars to all-time high

AP News ^ | Jan 12, 2005 | MARTIN CRUTSINGER

[neutrino]

WASHINGTON (AP) -- America's trade deficit soared to an all-time high of $60.3 billion in November, reflecting record levels for imports of everything from oil and consumer goods to farm products, the government reported Wednesday.

The Commerce Department said the November deficit was up 7.7 percent from an imbalance of $56 billion in October, which had been the previous monthly record. The new record caught private economists by surprise. They had been forecasting a slight narrowing in the November trade gap.

[neutrino]

It looks as if free traitin' continues to injure the U.S.

[Uncle Miltie]

Oh no! We're all gonna die! The millions killed already stand in judgment of the "Traitor Deficit"!

[neutrino]

A 60 Billion dollar monthly trade deficit, brought to us by free traitors.

[neutrino]

We're all gonna die!

Oh, heavens no! We'll just be a lot poorer. And the Chinese and Indians will be richer.

Perhaps they'll even give us a few Rupees and Yuan in aid.

Enjoy!

[ConservativeDude]

Can someone explain to me why it is bad macro economics for us in the US to get stuff cheaper out of the country rather than more expensive in the country? Why is that bad? Is the "trade deficit" really a normative concept? It is an interesting statistic to be sure, but I put it in the same category as "more people prefer chocolate over vanilla" or even better, "more people prefer cheaper chocolate over more expensive chocolate".

Now I know there is sort of a national security exception in that we don't want to enrich countries that produce with slave labor and want to kill us. Of course that is most of the world. But that is also a national security issue.

I'm really interested in the economics of this. Why is it bad macro economics to buy more overseas?

Isn't this sort of like saying that now that people prefer electrical light bulbs that the whale blubber makers are going to go under???

[A Ruckus of Dogs]

A 60 Billion dollar monthly trade deficit, brought to us by free traitors.

Your adversaries are the American consumers, who'd rather buy cheap stuff made in China at Wal-Mart, instead than more expensive stuff made by their fellow Americans.

[ConservativeDude]

"We'll just be a lot poorer."

How does getting cheaper goods make us poorer? I think it makes us richer.

I understand that we might not want to make China richer by purchasing their cheap goods. But at the economics level alone, us buying from China makes them richer and makes us richer, also.

That is unless you are in the whale blubber business....

[dennisw]

World On Brink Of Ruin
NEW YORK - Alan Greenspan, that Matador of the Money Supply, the esteemed Impresario of Interest Rates, has suffered precious few slings or arrows over his many years as chairman of the Federal Reserve. Even the White House has had to offer its critiques off the record for fear of roiling the markets or upsetting the chairman's Elvis-in-Vegas-like following. So when the chief economist of one of the world's most prestigious banks calls Greenspan a bum, that's a big deal.

And yesterday it happened. Stephen Roach, the chief economist for Morgan Stanley & Co. (nyse: MWD - news - people ), one of the most powerful investment banks and one of the 50 largest companies in the world, says Greenspan has "driven the world to the economic brink."

Writing in an upcoming issue of Foreign Policy, Roach says that when Greenspan steps down as chairman of the Federal Reserve next year, he will leave behind a record foreign deficit and a generation of Americans with little savings and mountains of debt. Americans, Roach says, are far too dependent on the value of their assets, especially their homes, rather than on income-based savings; they are running a huge current-account deficit; and much of the resulting debt is now held by foreign countries, especially in Asia, which permits low interest rates and entices Americans into more debt.

The "economic brink" line is from the headline of a press release sent by Foreign Policy. In an interview this morning, Roach said, "That's a little extreme." He does admit the nation has prospered on Greenspan's watch. Still, he does not disavow the haymakers he directs at the chairman's chin.

"This is no way to run the global economy," Roach says. So far, the Fed has bucked the odds, Roach adds. But the longer the situation exists, the more chance there is that it will spell danger for the United States and the world.

Roach lays the blame for the peril at Greenspan's door. But first he takes out after his outsized reputation. Greenspan is not responsible for defeating inflation in the 1980s; Paul Volcker, his "tough and courageous predecessor," deserves more of the credit, Roach says. Greenspan's monetary policy deserves some accolades for the 1990s boom, but former President Bill Clinton's fiscal policy and other factors were equally responsible, Roach says. Greenspan may deserve some praise for softening the recession that followed the stock market meltdown, Roach concedes, but the chairman's cure may result in "bigger problems down the road" and "the biggest bubble of all: residential property."

Many have credited Greenspan with saving the world following the 1997-98 Asian financial crisis. Time magazine went so far as to put the gnome of Constitution Avenue on its cover, under the headline "Committee to Save the World." Though it is the case that the world did not end, "In truth, the world weathered the Asian financial storm only to chart increasingly dangerous waters in the years that followed," Roach writes. "Global economic imbalances have intensified dramatically since 1999."

A good chunk of the U.S. prosperity is owed to these imbalances, Roach says: "Asian countries holding enormous stocks of U.S. dollars recycle this cash back into the United States by buying U.S. [Treasury bills]. This process effectively subsidizes U.S. interest rates, thus propping up U.S. asset markets and enticing American consumers into even more debt. Awash in newfound purchasing power, Americans then turn around and buy everything from Chinese-made DVD players to Japanese cars."

While the economist has nothing against DVD players, he does say, "Asia and Europe are increasingly dependent on overly indebted U.S. consumers, while those consumers are increasingly dependent on Asia's interest-rate subsidy. The longer these imbalances persist, the greater the likelihood of a sharp adjustment. A safer world? Not on your life."

Roach even questions Greenspan's political independence. He does not claim the chairman is a partisan Republican, but he does fault him for being a "cheerleader for policies such as tax cuts...that could make the endgame all the more treacherous."

Greenspan is to central banking what J. Edgar Hoover was to fighting crime. He will soon surpass the fondly forgotten William McChesney Martin as the longest-serving Fed chairman. But his term as a member of the Federal Reserve Board of Governors expires in just over a year from now, and America will have to do without. Roach says, "Greenspan will be a tough act to follow." But the difficulty may not be living up to the chairman's reputation so much as cleaning up his mess.

[A Ruckus of Dogs]

Why is it bad macro economics to buy more overseas?

It just means other countries have more of our money than we do. Read up on the Opium Wars for a perfect example of the problem and how the British dealt with it.

[TXBSAFH]

This can not be good, but the free traitors will say it is.

[ConservativeDude]

"Global economic imbalances have intensified dramatically since 1999."


What the hell does this mean?

He might as well have said, "intense preference for chocolate as opposed to vanilla has skyrocketed in the last decade..."

So what?

[A Ruckus of Dogs]

I understand that we might not want to make China richer by purchasing their cheap goods. But at the economics level alone, us buying from China makes them richer and makes us richer, also.

It makes us richer only in material goods. The Chinese get richer by having our money. There needs to be more of a balance.

[neutrino]

Your adversaries are the American consumers, who'd rather buy cheap stuff made in China at Wal-Mart, instead than more expensive stuff made by their fellow Americans.

And U.S. wages will decline, while Chinese and Indian wages increase. The realities of numbers (2.3 billion of them versus 0.3 billion of us) and the disparity of wages mean that we will suffer wrenching adjustments in the U.S.

[ConservativeDude]

"It just means other countries have more of our money than we do."

No it doesn't.

It means that they are taking in money and we are saving money. That makes both richer. That is sound macro-economics you want growth.

It might be bad for national security, but that is a different matter.

[dennisw]

Means trade deficts mostly

[LowCountryJoe]

It looks as if free traitin' continues to injure the U.S.

Please explain further...if you're capable.

[ConservativeDude]

"It makes us richer only in material goods."

Actually it makes us cash richer, also. If I formerly spent $1 for something and now I spend $.01 for it, then I am richer. The seller is richer and so am I.

"The Chinese get richer by having our money."

Thats correct. And we get richer by saving money by buying from them as opposed to a more expensive alternative.

"There needs to be more of a balance."

That is a conclusory assertion. What I am asking is for someone to explain precisely why there needs to be a balance from an economic perspective.

That is like saying there needs to be more of a balance between chocolate preference and vanilla preference.

[cynicom]

Not all bad news. Somewhere here is a thread that China has a soaring surplus of dollars which they will loan us to help us keep staggering on.

[neutrino]

How does getting cheaper goods make us poorer? I think it makes us richer.

So you get a new consumer item. In a few months or years it will be worth nothing.

China gets U.S. debt. We'll pay interest on that for a long time. Eventually, they might wish to be paid some of the principle.

Following your concept to the logical conclusion, I could max out my credit cards in an orgy of consumerism, but not really be in debt because I had acquired wealth.

I suspect the creditors would disagree with that strategy.

[neutrino]

Somewhere here is a thread that China has a soaring surplus of dollars which they will loan us to help us keep staggering on.

Or they'll purchase what few productive assets we have left. Such as Unocal - which they're looking at purchasing presently, per the WSJ.