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To: Bucky Katt who wrote (28956)	3/14/2006 9:05:31 AM
From: xcr600	Respond to of 48461

U.S. 4th-Qtr Current Account Deficit Rises to Record $224.9 Bln March 14 (Bloomberg) -- The U.S. current account deficit widened more than forecast to a record $224.9 billion in the fourth quarter, driven by a ballooning trade gap that is poised to worsen this year. The deficit, the broadest measure of trade because it includes transfer payments and income from investments, was up from a revised $185.4 billion the previous three months, the Commerce Department said today in Washington. For all of 2005, the deficit reached $804.9 billion, the biggest ever. The burgeoning gap threatens to undermine the dollar and foster higher interest rates should foreign investors tire of buying U.S. stocks and bonds, economists said. Rising interest rates and healthier economies abroad raise the possibility that investment may flow to other countries. ``It's a little, ticking time bomb,'' Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto, said before the report. ``It may get increasingly hard to get those inflows when opportunities improve elsewhere.'' The U.S. needs to attract about $2.5 billion a day to fund the gap and keep the value of the dollar steady. Even taking into account a growing economy, the deficit remains daunting. It equaled 7 percent of the nation's gross domestic product in the fourth quarter and 6.5 percent of GDP for all 2005, both all-time highs. The deficit set a record in seven of the last eight years. Economists forecast a fourth-quarter deficit of $218 billion, according to the median estimate in a Bloomberg News survey, from an initially reported $195.8 billion shortfall in the previous quarter. The previous record of $197.7 billion was reached in the first three months of the year of 2005. Crude Oil and China The deficit in trade, which accounted for 88 percent of the total current account imbalance, swelled to $197.4 billion last quarter as the country's imported-oil bill jumped and Americans' appetite for goods made in China and other Asian countries remained unfettered. The trade deficit compared with a $181.4 billion gap the prior three months. The trade gap jumped to a monthly record of $68.5 billion in January, the Commerce Department reported last week, getting 2006 off to an inauspicious start. The U.S. paid foreigners more income on their holdings of American assets than it received from U.S. investment abroad. That's helped to widen the deficit. Foreign earnings on U.S. assets, including wages and other compensation, rose to $132.3 billion in the fourth quarter from $115.9 billion in the previous three months. Income on overseas assets held by U.S. investors rose to $129.8 billion from $120.8 billion. That left a $2.4 billion deficit on income payments, compared with a $4.9 billion surplus in the third quarter. Government Payments U.S. government payments to foreigners and other private transfers abroad registered a $25.1 billion deficit, larger than the $8.9 billion gap in the prior quarter that was reflected hurricane insurance payments from overseas carriers. Fewer countries now account for a bigger share of an ``unprecedented'' jump in global currency reserves, so that ``the financing of the U.S. current account deficit has become concentrated,'' according to a March 8 report from the European Central Bank. Japan and China accounted for more than half of world reserve accumulation between 2002 and last year and together held around 40 percent of the total stock of reserves, the report showed. The build up of reserves and a growing trade deficit with China have given politicians fodder to demand change. U.S. officials, led by Treasury Secretary John Snow, have been pushing China's government to let its currency trade more in line with market forces. U.S. lawmakers, including New York Senator Charles Schumer, support legislation that would raise import duties on China's goods if it doesn't comply. Budget Deficit The U.S. government's budget deficit together with the current account gap represent ``unsound underpinnings'' in an otherwise ``good'' economic landscape, Robert Rubin, chairman of Citigroup Inc.'s executive committee and former Treasury Secretary in President Bill Clinton's administration, said in a Feb. 22 interview. ``At some point, these kinds of deficits are not viable,'' Rubin said. ``The probabilities are extremely high that if we don't address these imbalances, then at some point, and it could be years down the road, we'll pay a very big price.'' In his first testimony before Congress last month, Fed Chairman Ben S. Bernanke laid out some steps that could be taken to narrow the gap. These included an increase in U.S. savings, more spending overseas and currency adjustments to bring that about, he said. Bernanke supported calls for the Chinese to move to a more flexible exchange rate. ``I don't think that we can continue to finance the current account deficit at 6 percent or 7 percent of GDP indefinitely, and it's desirable for us to bring down that ratio over a period of time,'' he told lawmakers on Feb. 16.