Posted on 12/18/2006 4:20:05 PM PST by shrinkermd
Pushed up by soaring oil prices, America's trade deficit surged to a record high in the summer, but analysts predicted a slowly improving imbalance in the months ahead.
The current account trade deficit increased 3.9 percent to an all-time high of $225.6 billion in the July-September quarter, the Commerce Department reported Monday.
That third-quarter deficit was equal to 6.8 percent of the total economy, up from 6.6 percent of gross domestic product in the second quarter.
The current account is the broadest measure of trade because it tracks not only the flow of goods and services across borders but also investment flows. It represents the amount of money that must be borrowed from foreigners to make up the difference between imports and exports.
On Wall Street, the Dow Jones industrial average fell 4.25 points to close at 12,441.27 on Monday. It was the first time in four sessions that Wall Street had a down day.
At current levels, the United States is borrowing more than $2 billion a day from foreigners to finance the trade deficit.
While foreigners have been happy to sell their cars, clothing and computers to Americans and hold dollars in return, the worry is that at some point the desire for dollar-denominated assets could weaken, triggering sharp declines in the value of the dollar and pushing interest rates higher.
Analysts noted that for the third straight quarter, foreigners earned more on their U.S. investments than Americans did on their foreign holdings, sending the deficit in investment flows to a record of $3.8 billion.
The current account deficit is expected to hit a new record for the full year, far surpassing last year's record of $791.5 billion although some analysts said they believed the third-quarter figure would represent the worst of the deficit numbers.
(Excerpt) Read more at mercurynews.com ...
I'm so tired of this mistake being repeated over and over. We're not borrowing to buy goods from foreigners. We give them dollars. If they want to put them under their pillows, they can. If they want to eat them or use them as wall paper or toilet paper, they can.
If they'd like to earn dividends or interest on their dollars, they can buy stocks or bonds. If not, so what? We don't need their money to finance the trade deficit, they need us to handle their trade surplus.
If most of our international trade deficit is with China, why is oil even a worry? Another thing, we are buying all this merchandise with paper that a lot of people think is just one crisis short of being totally worthless, so what's the real problem?
yes, excellent point.
Yes. They can save their $$$ under their pillow or invest them back here.
"...Pure and simple, as a source of funds, Jane and John Q., with the well gone dry on the home equity front, have turned to plastic. They've also increasingly frequented other such usurious lenders as pawnshops, check cashers and that ilk -- which she dubs payday lenders -- where customers typically pay $793 for a $325 loan.
"...Stephanie reports that while home-equity loans have dwindled to a mere sliver of their former bulge, credit-card borrowing has been zooming, accounting or 47% of the increase in total consumer credit.
As to the payday lenders, they're enjoying a truly big payday: Their 33,000 storefronts exceed in number the outlets of McDonald's, Burger King and Wendy's combined.
The top five payday lenders -- America Cash Advance, Cash America, Dollar Financial, EZCORP and ACE Cash -- do an aggregate $2.3 billion in revenues; that's 50% more than they did a scant three years ago. Stephanie muses, though, that perhaps business is too good and "it's just a matter of time before their embarrassment of riches attracts the attention of the regulators."
As for the credit-card lenders, she predicts that it's just a matter of time, too, before what has laid the subprime lenders low affects them. "It's a little thing," she explains, "known as 'adverse selection,' " of borrowers. The irony is that while "their home-equity lending counterparts are beginning to turn down risky borrowers, the credit-card companies are rolling out the red carpet for them."
At this point, Stephanie suggests, investors might do worse than to short, and certainly underweight, the stocks of credit-card outfits, while going long subprime lenders;..."
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