* Trade Deficit #'s Set New Record ! *
......Helicopter Money Drops and out of control Deficits...The Song Remains the Same ~
"Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities will not cease to rise, everybody becomes eager to buy as much as possible and restrict his cash holdings to minimum size...If the credit expansion is not stopped in time, the boom turns into a CRACK-UP BOOM : the flight into real values begins, and the whole monetary system flounders."
Ludwig von Mises (1949)
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Associated Press
Current Account Trade Deficit at New High
06.17.2005, 08:45 AM
The deficit in the broadest measure of international trade rose to an all-time high of $195.1 billion from January through March of this year as the country sank deeper into debt to Japan, China and other nations.
The Commerce Department reported Friday that the deficit in the current account rose by 3.6 percent from the previous quarterly record, an imbalance of $188.4 billion in the final three months of 2004.
The current account deficit has risen to record heights in recent years as America's demand for foreign goods and servicers has soared, raising worries about the country's ability to continue financing a trade deficit at such heights.
The current account deficit for all of 2004 hit a record $668.1 billion, up a sharp 28.6 percent from the previous record of $519.7 billion in 2003.
The current account is the broadest measure of foreign trade because it covers not only trade in goods and services but also foreign aid and investment flows between nations.
The U.S. deficit must be finananced by foreigners agreeing to hold more in dollar-denominated investments, something that so far they have been quite happy to do as they sell Americans more and more foreign cars, television sets and other consumer products.
However, economists worry that at some point foreigners may lose their enthusiasm for dollar-denominated investments and begin dumping their holdings in U.S. stocks and bonds. Such a development could cause interest rates in the United States to soar and push the value of the dollar and stocks down sharply. If the reaction was severe enough, it could push the country into a recession.
Federal Reserve Chairman Alan Greenspan has called the current account levels unsustainable but he also has said that market forces should be able to deal with the problem in a way that will not seriously disrupt the U.S. economy.
The rise in the current account deficit for the first quarter meant that the deficit now represents 6.4 percent of the total U.S. economy, also a record as a percentage of the gross domestic economy.
The deterioration in the first quarter deficit reflected an increase of $4.15 billion in the deficit in goods which rose to $186.3 billion. This was offset slighlty by an increase of $1.62 billion in the surplus in services, which rose to $14.57 billion in the first quarter.
The surplus on investment flows increased by $541 million to $3.78 billion but the deficit in unilateral transfers, a category that includes foreign aid, increased by $4.70 billion to $27.07 billion.
forbes.com |
