Thursday, October 14, 2004

Just when you thought it was safe to go back in the US current account waters. OK you never did think it was safe, but that big drop-off at around 1998 ft. is getting steeper and steeper.
The US trade deficit boomed to 54 billion dollars in August, the second biggest in history, as the country was swamped by high-priced oil and Chinese-made imports.

The total gap grew 6.9 percent from July to a seasonally adjusted 54.0 billion dollars in August -- one billion dollars short of the record posted two months earlier, the Commerce Department said Thursday.

The scale of the deterioration surprised analysts, who had expected a deficit of about 51.5 billion dollars.
Ah, it's always fun to point out how the "analysts" really don't know a damned thing. They were expecting a 2% rise in the monthly trade deficit and got handed a 7% jump instead.

The 2004 US economy is now the proud owner through eight months of the eight largest monthly trade deficits in history. The three largest deficits have occurred in the last three months. Monthly goods exports have been stagnant since April, and though exports overall are rising at a 13% clip on the year, imports are up 15%. The 2004 trade deficit is now a full 19% larger than last year's. "Strong and getting stronger", eh?

China alone is 24% of the US goods deficit. China and Japan together compose 36%. Well, at least we've filled their coffers with lots more dollars to loan us! Because we're going to need it. The 2004:I current account balance was -$147.2bn; 2004:II was -$166.2bn. With these numbers, the 2004:III balance could even sink below -$180bn.

Two quarters in a row of CA deficits well in excess of 5% of GDP will be pressing hard on the sustainability of this entire dysfunctional system. The Chinese are already having difficulty sterilizing its massive dollar inflows, the bigger they grow the more difficult it becomes. A larger money supply in China means more Chinese inflation, more/larger property bubbles and a larger and ever-growing threat of real collapse.

The Fed Governors started pushing the People's Bank of China on renminbi revaluation late last week. Now everything is quiet. Are we just whistling in the dark?

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