Monday, June 14, 2004

The only thing that can beat a record US trade deficit is -- you guessed it, an even bigger US trade deficit!
The nation's trade deficit widened in April to a record $48.3 billion, the Commerce Department reported this morning, as America's appetite for imported goods and services continued to grow.

The trade gap comes after a $46.6 billion deficit in March. . . .

Many analysts had expected that the decline in the value of the dollar on foreign exchange markets over the last 18 months to two years would lead to a narrowing of the trade gap. In fact, until the past few months, the deficit appeared to have stabilized, although at a very high level.

Now, however, economists said it very much looks like the deficit picture has worsened further.

"I was not convinced there was a renewed deterioration under way," said David Hendley, an international economist at JP Morgan Securities. "It is getting harder to say that now. Despite pretty decent export growth over the last year, import demand is running faster. That is not the recipe to even stabilize the deficit."
Let's see, the trade deficit has increased each of the last five months, setting a new record each and every time. So far the 2004 trade deficit is running 10% over the 2003 pace and 45% over the 2002 pace. All of this is also in the face of a falling dollar -- the nominal broad dollar index is down 10.5% since February 2002 -- which has had absolutely no effect on the trade deficit (thanks, economists). Don't give me some song and dance about 'delayed effects,' either. Twenty-seven months should be enough.

The 2004:I Federal Flow of Funds report shows that the federal government is both increasing its debt dramatically -- in 2004:I, the second highest quarterly total ($466bn) and the third fastest quartely growth rate (11.6%) under the Boy King -- and completely dependent on foreign purchases of its securities. How much longer until the rest of the world says "enough"? Forever??

The current account figures for 2004:I are coming out Friday. A return to deficits over 5% of GDP seems unavoidable.


At 8:34 AM, Blogger Globalize This! said...

Yes, the dollar has fallen, but not against the countries who comprise most of the trade deficit: China, Japan, and others in East and Southeast Asia. So China, Japan, et. al. keep their currencies undervalued to gain competitive advantage in exports to the US while Europe, Mexico and the rest of the world outside Asia are made to bear the brunt of the adjustment.

At 9:33 AM, Blogger Gen. Glut said...

For the first four months of the year, the US goods deficit is largest with: China (-$42bn), Euro area (-$25.1bn), Japan (-$24.4bn) and Canada (-$20.9bn). Together that's about three-fifths of the total.


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