America’s financial standing with rest of world best since 1999

marketwatch ^ | March 19, 2014, 10:37 AM | Jeffry Bartash

[ckilmer]

America’s financial standing with rest of world best since 1999

[ckilmer]

March 19, 2014, 10:37 AM

Share:

More

Email Print

 

America still buys more goods and borrows more money from the rest of the world than foreigners do from the U.S., but the gap has now shrunk to a 14-year low.

The government on Wednesday said the U.S. current-account deficit fell 16% to a preliminary $81.1 billion in the fourth quarter from $96.4 billion in the third quarter. That’s the lowest deficit in 14 years.

What’s more, the deficit as a percentage of the size of the U.S. economy dropped to 1.9% from 2.3% to mark the lowest level in 16 years. The gap as a percentage of gross domestic product reach as high as 6.5% in 2005.

The current account is an eye-glazing economic statistic, but it’s still a very important one. It basically tells us how much the U.S. in in arrears with the rest of the world, based on trade and income inflows and outflows.  Surpluses reflect economic strength while persistent deficits are a sign of weakness.

The U.S. mostly ran surpluses from the end of World War Two until the mid-1970s. By then rising petroleum prices began to drain more money out of the oil-dependent domestic economy and the U.S. started borrowing heavily from abroad to finance government and consumer spending.

In short, America has been living beyond its means for decades, buying from goods from other nations only too happy to lend to the U.S. to pay for it all. The current-account deficit is a reflection of the large U.S. trade gap and the nation’s steadily rising national debt.

The good news is that the trend has sharply reversed since the current-account deficit hit a record $214.5 billion in 2006. The growth in U.S. imports has slowed, for one thing, and that’s due in large part to the biggest domestic oil boom in decades. A technique known as fracking has allowed the nation to extract far more oil and natural gas compared to a decade earlier. American vehicles are also more fuel-efficient, reducing demand for gasoline.

Higher inflows of foreign money into the U.S. and smaller outflows from America to the rest of the world have also helped lower the gap.

Foreigners have also invested more in America because the U.S. economy is better off compared to Europe and most developing nations. In the fourth quarter, for instance, foreigners bought more Treasury bonds and made more direct investments. Foreign-owned assets in the U.S. surged to $325 billion in the fourth quarter compared to a $145.6 billion increase in the prior period.

At the same time, though, foreigners are not earning as much investment income from the U.S. because of very low interest rates. Still, they’ve kept a lot of money parked in assets such as Treasurys as a safe haven given economic and political uncertainty elsewhere.

Surprisingly, foreigners appeared to take profits from the stock market in the fourth quarter. They sold a net $61.3 billion worth of shares after boosting net purchases by $127.9 billion in the third quarter.

Can the downward trend be sustained and eventually push the U.S. toward its first current-account surplus in more than 20 years? That will be a lot harder to do. As the economy improves Americans are likely to buy more imports and the U.S. still relies heavily on foreign-produced petroleum products.

– Jeffry Bartash

[icwhatudo]

Translation: We are losing so many jobs and so many are having to work part time that we don’t have the money to buy stuff from overseas anymore. The rest of the world is doing better, thanks to the jobs we sent them, and are buying more of our crap.

[SpaceBar]

Only when financial analysts have to flip burgers to make ends meet will we hear a different tune.

[Bobalu]

Whistling past the poor house....

[entropy12]

We did not send jobs to them. They created jobs with better business friendly policies. Hong Kong, Singapore, Australia & New Zealand have much more business friendly policies. I was in Singapore 2 weeks ago and they have to import foreign workers on 2 year work-permits because there are more jobs than people. Their max tax rate is 20% and there is no unemployment compensation for the unemployed. There are no food stamps or any other checks going out to people of working age. Result is they have essentially no unemployment.

China has encouraged people to get rich. There are one million new millionaires in China compared to just a few decades ago.

[Amendment10]

Very appropriate 2nd post imo.

[Vince Ferrer]

Some of this is also our domestic oil boom.

[Rockingham]

For the US, the longstanding current account deficit involves a lot more than the article suggests. With the dollar as the world's reserve currency, the US gets the benefit of seigniorage, being able to print dollars and issue debt that the world economy absorbs as transactional currency and backing for foreign currencies. In addition, countries that depend on export to the US like China and Japan buy and hold dollars in order to keep their own currencies from rising and cutting into exports.

[sten]

1999 ... national debt: $5.5 trillion

2014 ... national debt: $17.4 trillion

oh yea, that’s much better

freakin morons

[Chgogal]

Bfl

[kearnyirish2]

There is no defense for trading with countries that have labor policies we outlawed a century ago; our jobs went to Red China and other dictatorships with minimal human rights. I can’t remember the last time I bought something made in Australia, New Zealand, Singapore, or Hong Kong; the cheap crap in our stores is from Red China, Vietnam, Bangladesh, Burma, etc.. They will always be more “business-friendly”, they work their people as slaves for basic sustenance.

[wetphoenix]

~the cheap crap in our stores is from Red China, Vietnam, Bangladesh, Burma, etc..~

Are you suggesting a minimal wage for them?

[kearnyirish2]

“Are you suggesting a minimal wage for them?”

No, just explaining why our jobs went over there (and will never come back). As long as we allow that stuff to be sold here, our standard of living will continue falling. At this point, homes, higher education, and families are beyond the range of most young people; soon cars and household appliances will be as well.

[staytrue]

Yeah for Obama. He does get credit for this does he not ?

Actually, he does not.

Under Obama, the USA oil output has increased from about 6 million barrels a day to 10 million.

And we used to import LNG and now we export it.

Take out the fracking boom and we are about where we always were.

Obama does get credit for the trade deficit not getting worse.

But absent the fracking boom, the trade picture has not changed.

[ckilmer]

Some of this is also our domestic oil boom.
...........
Its almost entirely the domestic oil boom.

[ckilmer]

agree

[entropy12]

You have no clue how bad life was in China, India, Vietnam, etc. before they discovered naked capitalism. China had virtually no jobs for ordinary people. Now there are hundreds of million Chinese who have a place to live and 3 square meals everyday. India had food shortages and had to import food for survival. There was virtually no industrial jobs. After discovering raw capitalism, India has a larger middle class than United States. It is impossible to transform from poor country to a rich country overnight. The rate of progress however is amazing.

In the meanwhile USA is turning increasingly socialist. 50 million on food stamps? We are screwed for many decades to come. Eventually people will wake up like they did in China and India and Vietnam. Give us 40 to 50 years of pain first.

[ckilmer]

Yeah for Obama. He does get credit for this does he not ?

Actually, he does not.
....................
I don’t disagree with your thinking.

For example back in the late 90’s the booming stock market and low gas prices kicked in an extra couple hundred billion dollars to the federal government revenues. At the same time Newt Gingrich fought to keep the federal budget from growing. Clinton fought Newt tooth and claw. He wanted to spend all the extra revenue. He creamed Newt for all that Newt did—which was just to keep the federal budget from growing further.

And then once the budget was balanced—Clinton took credit for the the balanced budget. When in fact he had nothing to do with it and he did everything he could to prevent it from happening.

The democrats now now Clinton as the guy who balanced the budget. Nothing could be further from the truth. But that doesn’t stop them from saying it. The budget balanced on Clinton’s watch.

[kearnyirish2]

“You have no clue how bad life was in China, India, Vietnam, etc. before they discovered naked capitalism. China had virtually no jobs for ordinary people.”

Don’t assume I have no clue. Those countries had agricultural economies before we build their manufacturing sectors.

“Now there are hundreds of million Chinese who have a place to live and 3 square meals everyday. India had food shortages and had to import food for survival. There was virtually no industrial jobs. After discovering raw capitalism, India has a larger middle class than United States. It is impossible to transform from poor country to a rich country overnight. The rate of progress however is amazing. In the meanwhile USA is turning increasingly socialist. 50 million on food stamps? We are screwed for many decades to come. Eventually people will wake up like they did in China”

Are you failing to see the relationships there? We are on food stamps because we exported our jobs (and associated prosperity). What are we going to do in 40 or 50 years, get those jobs back from Red China by offering to work in exchange for a new bicycle every year? Don’t expect Americans to support capitalism when our industry does an end-run around laws and competition by using Asian coolies instead of American workers; voting for socialism should be expected.

[kearnyirish2]

At some point Americans are going to get wise to the fact that the best way to drive up stock prices is to lay off American workers and replace them with foreign workers. A “booming stock market” today (when you take into account our unemployment and drop in standard of living) simply means jobs are still leaving our shores.