Ignoring the dire biblical symbolism of this number, I for one am eager to see how an all service economy works out. You service me, and I service you… you blow me, and well, I’ll remember you fondly and put you on my Christmas card list.
When I complained about the record trade deficit in 2003, which was a piddly 503Bn, I got few snarky responses (largely from one dipshit who is no longer here so I won’t use names) that the US would just have adapt, and that no ‘leveling’ of the trade ‘playfield’ was needed. Note that I’m a free trade advocate, so long as that free trade is fair.
So, we’ll be spending another year moving production, and jobs, across the Pacific. Don’t blame me. It’s my second least favorite option, right behind ‘do nothing and loose everything.’
The only good thing about this is that it’s an issue on which the Left and Right can readily agree.
Conservatives are delighted when businesses can ship jobs abroad to obtain cheap labor and dodge those nasty environmental restrictions.
Liberals are happily willing to look the other way when it comes to American job losses and lack of self-sufficiency (even in food production) if it means enhanced Third World development.
Let’s globalize!
I know that there are both conservatives and liberals who are overjoyed, but I’ve also got to think that the majority of middle class Americans would be protesting in the streets if they understood that their quality of life was about to drop significantly. Now I state that as fact because I believe it to be true, but I’d be happy to be wrong.
The old man does a lot of economic forecasting for Fortune 500s, universities and city governments. I completely defer to his judgement in all matters financial. This and the amount of debt our country is accrueing are the things he, normally a pretty sedate person, rages about the most lo these last several years.
His concern isn’t for his generation, it’s for mine… and my kid’s.
I don’t have near the background of your old man, lieu, but I agree. When the creditors financing your budget deficit are the same ones enjoying the trade advantage, they exert a degree of control that rivals anything they could accomplish politically.
If any other country was running a trade defiicit of more than 2,000 USD per head of population, its currency would be collapsing faster than a punctured balloon. The US escapes this because, (1) the USD is a fundamental currency in internartioonal economics, and (2) East Asia (especially China) really does not want to see the US economy collapse, because it would lose its best market.
However, it can’t go on. Americans need to tighten their belts a bit, and if the Federal government won’t do it gently by increasing interest rates and increasing taxes, then the market will do it more roughly by devaluing the USD – which is already happening, of course, but it can get a lot worse.
It’s not just really a matter of the US needing to sell more overseas: it’s a matter of the US needing to buy less overseas, including less oil.
The best we can hope for is an orderly retreat. I wasn’t too worried 5 years ago about the stock market bubble pop having a long term disasterous impact (sure lots of lost paper wealth, board room scandles, recession and the ensuing hangover, etc., but we certainly aren’t in a depression) because other fundamentals were headed in the right direction, e.g. the rate of change for both foreign and government debt was less than the rate of change for productivity and overall economic growth (in a positive direction).
But one potential we’re looking at now…accelerating inflation, leading to sharply higher interest rates, leading to a second recession in the early 00 years, leading to slower imports from our trading partners who now face slow downs in their own economies, causing them to move assets from the US, causing asset values to decline, leading to pronounced decreased wealth effect that has never been seen and so on and so forth.
The orderly retreat would see interest rates increase slowly enough to take some steam out of the economy and strengthen the dollar enough that asset values don’t decline to much. It is going to be tricky managing this.
We have reached the point at which the Chinese would risk disaster, should the US devalue the dollar. The Chinese have been selling everything and buying nothing, and all of a sudden, the books are going to be balanced.
Look for the end of cheap Chinese-made goods, and the rebirth of American manufacturing.
But the oil thing worries me…how do you adjust to $100/barrel oil?
I think all Bush lovers should show their confidence in him by rushing out and getting ARMs.
Supposedly the decline of the dollar is supposed to reduce the trade deficit. Doesn’t seem to be working. Look what happened to the market when there was a rumor that the Japanese were decreasing their dollar purchases. Some day it is really going to happen, and there will be hell to pay.
Are you serious? The Chinese are purchasing vast amounts of copper, precious metals, polymers, fuel, concrete etc. in order to build infrastructure in industrial zones. The also buy in RMB, which is pegged to the dollar, so they get no advantage here. It just so happens that their exports are just as staggeringly large.
I’ll tell you who risks disaster if the dollar goes under: the US. How much fun is it going to be to finance US debt if the dollar isn’t a keeper any longer?