Posted on 07/19/2005 10:52:08 AM PDT by Willie Green
Washington -- DURING the cold war, as the Soviet economic system slowly unraveled, internal reform was impossible because highly placed officials who recognized the systemic disorders could not talk about them honestly. The United States is now in an equivalent predicament. Its weakening position in the global trading system is obvious and ominous, yet leaders in politics, business, finance and the news media are not willing to discuss candidly what is happening and why. Instead, they recycle the usual bromides about the benefits of free trade and assurances that everything will work out for the best.
Much like Soviet leaders, the American establishment is enthralled by utopian convictions - the market orthodoxy of free trade globalization. The United States is heading for yet another record trade deficit in 2005, possibly 25 percent larger than last year's. Our economy's international debt position - accumulated from many years of tolerating larger and larger trade deficits - began compounding ferociously in the last five years. Our net foreign indebtedness is now more than 25 percent of gross domestic product and at the current pace will reach 50 percent in four or five years .
For years, elite opinion dismissed the buildup of foreign indebtedness as a trivial issue. Now that it is too large to deny, they concede the trend is "unsustainable." That's an economist's euphemism which means: things cannot go on like this, not without ugly consequences for American living standards. But why alarm the public? The authorities assure us timely policy adjustments will fix the matter.
(Excerpt) Read more at nytimes.com ...
Greider is probably the person most responsible for making an entire generation of Rolling Stone readers into paranoid, leftist, economic ignoramuses. If you'd listened to him, you would've been holed up in your basement with your ration of canned water and crackers since the big Reagan-caused depression of the 1980s. It's coming, people!!... The surest way to get rich is to listen to William Greider or Paul Krugman, then invest in the opposite direction.
It wasn't long after that that the GOP became quite serious about having a balanced budget.
They put up a good fight in Congress when the 'Toon was in charge...
But as soon as their cronies captured control of the White House, Senate AND House, they couldn't resist plundering the Treasury. It's a weird turn of events, but the PTB are the ones who gave Greider some legitimate ammo to play with.
The evils of globalization. Well, I'm not exactly sure what globalization means in this context. The problems Greider points out, or at lease eludeds to, are more of a matter of our markets being more open than the markets of other countries we trade with.
While having a trade deficit isn't desirable, I think the author is missing a very important fact. America has consistently had a trade deficit, and we are the richest country on earth.
Obviously having a trade deficit hasn't destroyed us yet, and liberals have been complaining about it and free trade as far back as I can remember.
Yes, we are in debt to China. Another way of looking at that is that China is being forced to buy up huge sums of American dollars to keep their currency artificially deflated to keep their economy growing and encourage investment to build infrastructure.
We should be worried about China's economic investment making them even more competitive in the future. We should also put more pressure on them to let their currency float and to loosen to protections on their markets.
However, the American people like buying their goods inexpensively, inflation is low, unemployment is pretty low and seems to be getting better. Our economy is recovering and growing.
My wife is currently out of work and looking for a job, but while some us are individually suffering some financial hardships, the country is doing pretty well.
Our trade deficit is awfully high right now. We don't want it to remain this high. However, there very well may be benefits to allowing it to be high right now.
There have been people saying our trade deficit is going to cause economic ruin in the near future for as long as I remember. If all our jobs are going overseas, then why do we have lower unemployment than all these nations that he's saying have better economic policy?
Where's the evidence of impending disaster that's been long predicted?
"For years, elite opinion dismissed the buildup of foreign indebtedness as a trivial issue. Now that it is too large to deny, they concede the trend is "unsustainable." That's an economist's euphemism which means: things cannot go on like this, not without ugly consequences for American living standards. But why alarm the public? The authorities assure us timely policy adjustments will fix the matter."
Years where we had lower unemployment than those other countries.
Years where our economy was growing faster than theirs.
Maybe the economists are just sick of people crying wolf about the trade deficit all the time?
Saying that the trade deficit isn't sustainable isn't saying that we're facing impending doom. If we were there should be other indicators such as increasing unemployment. It does mean that the trade deficit is something we should be concerned about and try and shift policy toward reducing it without making drastic changes that would wreak havoc on our economy.
We just dramatically increased our national dept due to reacting to a major terrorist attack on 9/11 and being woken up to the fact that we had neglected our military.
We're paying a high price for that neglect economically, but even while paying that high price we're doing better than our competitors.
Eight years of Clinton neglecting our military resulted in us being poorly prepared, and forced us to spend more money than we should have had to in order to ramp our capabilities back up quickly.
We need to meet our responsibilities in restoring the military, and we need to rebuild our intelligence infrastructure that was trashed by the Clinton administration.
However in the long term, we need to get spending under control, and start reducing the debt.
If we keep our debt under control, and we keep unemployment undercontrol, it doesn't amtter that we're spending more money buying foreign goods than they spend buying our goods. That's what you would expect from the richest country in the world.
So you are one of the those people who say the pie is only so big... That if someone else gets some that means you get less...
That simply isn't true.
We make more pie. And have been doing so for quite some time.
That's pretty disingenuous. Yes it has risen in the last 5 years, but it is lower than every year from 1987 to 1989. We are at 62% for the last two years, and the averge for 1981-1996 (all the avilable data I have) is 62%. If we continued growing like we did in 2002 and 2003, I'd be worried, but the debt growth has flattened, and given the continuing good economy, will begin to shrink over the next couple of years. Prett much all the grown in debt is in 2002 and 2003 and can be directly attributable to increased spending after 9/11 and two slow years of growth.
At this point, Leftist critiques of our economic and geopolitical strategy are of little interest. It's the critiques from the Right that would be of value.
Has the drunken-sailor-in-chief used his veto yet? </rhetorical question>
Because we have an economy that can support it!
Because our economy is the most creditworthy. You can't have a "trade deficit" without an equal and opposite "investment surplus" - the two are an accounting identity.People who are spooked about the "trade deficit" would really swoon if they found that we had an "investment deficit." Ya can't win.
The tax cuts have also been a factor. According to the administration's own budget documents, both the tax cuts and spending have contributed to the deficits. For example Table 7 in the 2005 Mid-Session Review breaks down the increase of over $2 trillion in the deficit since the 2002 Budget. It states that 49 percent of this swing was due to reestimates, 29 percent was due to tax relief, and the remaining 22 percent was due to the war, homeland, and other spending.
Regarding the future debt-to-GDP ratio, following are the improved projections from the just-released 2006 Mid-Session Report:
Budget Totals (billions of dollars)
Actual Estimate
2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------
Unified deficit 412 333 341 233 162 162 170
On-budget deficit 567 508 535 438 388 381 375
Gross deficit 595 587 645 578 524 515 509
Gross Federal Debt 7355 7942 8587 9165 9689 10204 10713
GDP 11554 12271 12966 13681 14429 15198 16001
Budget Totals (percent of GDP)
Actual Estimate
2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------
Unified deficit 3.6 2.7 2.6 1.7 1.1 1.1 1.1
On-budget deficit 4.9 4.1 4.1 3.2 2.7 2.5 2.3
Gross deficit 5.1 4.8 5.0 4.2 3.6 3.4 3.2
Gross Federal Debt 63.7 64.7 66.2 67.0 67.1 67.1 67.0
Source: 2006 Mid-session Review, Tables S-1, S-8, S-16
As can be seen, the gross debt is now projected to stabilize at about 67% of GDP from 2007 through 2010. This is just below where the ratio topped out ten years ago. The problem is that we're ten years closer to the Boomer retirement without a coherent plan to deal with it. The following graph shows the long-run debt projections from the most recently released U.S. Budget:
The actual numbers and sources can be seen at http://home.att.net/~rdavis2/pro2006.html. As can be seen from those numbers, the public debt is projected to reach 249% of GDP by 2075. Of course, something is likely to give well we reach that point.
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