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April 14th 2005

US Trade deficit worsens

At $61 Billion, the United States’ trade deficit has set yet another record. It was expected that as the USD depreciated, and the economy reached a more mature stage in the current economic cycle, that this deficit would narrow. There appears to be no end to the deficit problem in sight. Asian economies, with their cheap currencies and exports, deserve much of the blame. US fiscal irresponsibility is also culpable, as the current administration is not treating this problem with the gravity it merits. As usual, the pessimists have been quick to voice their opinions on the widening deficit. They argue that the deficit is not sustainable in the long run. At some point, Asian economies will decide they no longer wish to finance the deficit, and a day of reckoning will occur. The IMF agrees. If the imbalance is not soon addressed, the US may be forced to raise interest rates at a quicker-than-expected pace, stunting economic growth. The Financial Times reports:

This would probably prompt a similarly abrupt rise in US interest rates, which could kill off the US housing and consumption boom and explode over- leveraged financial institutions, with severe global consequences.

Read More: Imbalances Worsen

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Posted by Adam Kritzer | in US Dollar | 5 Comments »

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5 Comments of “US Trade deficit worsens”

  1. Reema Says:

    Not all Asian currencies are kept artificially cheap except Chinese Yuan. Yuan is at least 15% cheap than its actual value and Yuan’s deflated value does hurt US and plays a significant role in widening its trade deficit. Last year, US had $162 billion deficit with China out of its total $666 billion trade deficit. If a trading partner responsible for 25% of trade deficit is going to peg the currency, no matter how much USD depreciates, it is not going to reduce the trade deficit by much. And yes, don’t forget the surging oil prices, which also contribute a lot to the current trade deficit.

  2. thomas riccardo Says:

    Let’s not forget the trade deficit with Europe which is over 130 billion and climbing. We also have large trade deficits with Canada, Mexico, Japan, Saudi Arabia and others.
    The U.S. is nolonger a manufacturing country and continues to call behind.

  3. Ames Tiedeman Says:

    The dollar collapse is a given.

  4. ames Tiedeman Says:

    I am told that some economists see the U.S. Trade Deficit hitting 2 Trillion in 10 years. This seems unreal. We had a trade surplus in 1974.
    Amazing if true.

  5. Ames Tiedeman Says:

    The United States of America has not had a trade surplus since 1975. We have not had a trade surplus with Japan since April, 1976. Every year since 1983 we have been in deficit with Europe. The last time America had a trade surplus with both Russia and China was a very brief period during the Cold War. We have been running ever increasing trade deficits with South Korea since 1998. Our 1993 trade surplus with Mexico is now a 100 billion a year trade deficit. In the 1970’s, 80’s, and much of the 1990’s our trade deficit was never more than one half of 1% of GDP. We now find ourselves with a trade deficit of between 5% and 7% of GDP depending on how you count. From 2002 to 2007 the trade deficit exploded. The only reason unemployment stayed well under 6% is because of the credit bubble. 63% of all jobs created from 2000 to 2006 were housing or credit bubble related. We did not feel the destructive affects of the trade deficit because of this credit bubble. I have concluded from work I have been doing that America will never get unemployment even under 7% with a trade deficit of over 3% of GDP, without a major credit bubble. The U.S. Economy has actually stopped functioning like a real economy. We literally need a credit bubble to function. America must move from the ideology of free trade to the economic policy of balanced trade. Until this structural shift takes place you can bank on the American economy being the laughing stock of the world economy.

    Ames F. Tiedeman
    Dripping Springs, Texas

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