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Politics : View from the Center and Left

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To: Bearcatbob who wrote (54250)	3/17/2008 5:32:24 PM
From: wonk	Read Replies (2) of 542432

…I believe it is the economy that is causing the "problem". The economy has been growing and as such draws in imports. That is a unique "problem" in that trade deficits are a byproduct of growth. We could cure this by creating an internal depression - but then things would be worse. The trade deficit is what is causing the dollar problem as we are flooding the world with $ No, no. The economy is not growing, nor has it been growing. What you’ve seen is the appearance of economic growth due to the massive increase in debt. The canary in the coal mine is that growth in median HH income has been almost flat. Compare that to the published GDP growth rates. The only way to explain that is debt. A simple analogy: Imagine a dividend paying public company which has flat or negative growth in EBITDA (earnings before interest taxes, depreciation and amortization) but which continually increases its bank borrowing, partially funds the dividend and keeps the cash remainder in the bank. Despite flat EBITDA, net income will keep rising due to interest income. But the core business is not growing. Eventually, you’ll chew up the cash balances, net income will plateau, the lack of growth will be exposed, and the Company will be far worse off because its debts service ratios will now be dangerously out of whack. That is accounting legerdemain. Similar situation in the US, we keep borrowing but we use the borrowing for current consumption. We don’t use the borrowing to build capital assets and we are actually exporting our capital base.

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