MikeM-
<<Who would have thought? And how long can it go on?>>
Something tells me you're a numbers guy. Well I've been worrying about the trade deficit for two decades, and all that worry hasn't gained me penny, as best I can tell. But here's a little except from Gene Epstein's article in this week's Barrons, entitled "What Me Worry About Trade Data?" with the subtitle "Yes, particularly when Alan Greenspan does".
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In 1998, the U.S. ran a $248 billion trade deficit in goods, up from $198 billion in
1997. In other words, imports of goods were $248 billion higher than exports. We
imported so much because our economy was booming and because consumers
were spending a record share of their income. ...
But while goods are the main component of our international trade, we do trade in
services like law, finance, design, computer programming and advertising. In '98,
the U.S. ran a surplus in services trade of $79 billion, down slightly from the $88
billion surplus in '97.
The deficit in goods and the surplus in services, which came to $169 billion in '98,
is generally what we think of as the trade deficit. But the current account includes
two other items, the first of which is unilateral transfers. This refers to the net
transfer of money from both government and private citizens, and not surprisingly,
the U.S. generally sends a lot more abroad than it receives. In '98, this account ran
at a deficit of $42 billion in '98, up slightly from $40 billion in '97.
Finally, there's the balance of investment income, and here we get a bit closer to
Greenspan's concern. U.S. investors own assets abroad and foreign investors
own assets in the U.S., both of which yield income. Until 1997, our investment
income balance ran a surplus every year. But in '97, we earned less than
foreigners on our investment income by $5 billion and in '98, this deficit jumped to
$22.5 billion.
The $248 billion goods deficit, $79 billion services surplus, $42 billion deficit in
unilateral transfers and $22.5 billion deficit in investment income brought the 1998
current account deficit to $233.5 billion, up from $155 billion in '97. ...
But what's not to like about this situation? Well, first there's the hot- money issue.
If for any reason Asian and European investors suddenly exited en masse from
our markets, the resulting crash could be harmful.
Larry
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