Virgil
09-17-2008, 09:54 PM
http://counterpunch.org/morici09172008.html
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September 17, 2008
The U.S. Records Another Huge Accounts Deficit
The Damage Deepens
By PETER MORICI
Today, the Commerce Department reported the second quarter current account deficit was $183.1 billion. This was caused largely by a $216.3 billion deficit on trade in goods.
The current account is the broadest measure of the U.S. trade balance. In addition to trade in goods and services, it includes income received from U.S. investments abroad less payments to foreigners on their investments in the United States.
At about five percent of GDP, the huge current account deficit indicates Americans continue to consumer much more than they produce, borrow too much from the rest of the world
The current account deficit is nearly entirely caused by the huge deficit on trade in goods. In turn, the goods deficit is caused by a combination of an overvalued dollar against the Chinese yuan, a dysfunctional national energy policy that increases U.S. dependence on foreign oil, and the competitive woes of the three domestic automakers. Together, the trade deficit with China and on petroleum and automotive products account for about deficit 90 percent of the deficit on trade in goods.
To finance the current account deficit, Americans are borrowing and selling assets at a pace of $600 billion a year. U.S. foreign debt exceeds $6.5 trillion, and the debt service comes to about $2,000 a year for every working American.
The current account deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy. This reduces labor productivity, research and development (R&D) spending, and important investments in human capital. In 2007 the trade deficit is slicing off $300 to 500 billion off GDP, and longer term, it reduces potential annual GDP growth to 3 percent from 4 percent.
Each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment, and shifts workers into activities where productivity is lower. Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP.
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September 17, 2008
The U.S. Records Another Huge Accounts Deficit
The Damage Deepens
By PETER MORICI
Today, the Commerce Department reported the second quarter current account deficit was $183.1 billion. This was caused largely by a $216.3 billion deficit on trade in goods.
The current account is the broadest measure of the U.S. trade balance. In addition to trade in goods and services, it includes income received from U.S. investments abroad less payments to foreigners on their investments in the United States.
At about five percent of GDP, the huge current account deficit indicates Americans continue to consumer much more than they produce, borrow too much from the rest of the world
The current account deficit is nearly entirely caused by the huge deficit on trade in goods. In turn, the goods deficit is caused by a combination of an overvalued dollar against the Chinese yuan, a dysfunctional national energy policy that increases U.S. dependence on foreign oil, and the competitive woes of the three domestic automakers. Together, the trade deficit with China and on petroleum and automotive products account for about deficit 90 percent of the deficit on trade in goods.
To finance the current account deficit, Americans are borrowing and selling assets at a pace of $600 billion a year. U.S. foreign debt exceeds $6.5 trillion, and the debt service comes to about $2,000 a year for every working American.
The current account deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy. This reduces labor productivity, research and development (R&D) spending, and important investments in human capital. In 2007 the trade deficit is slicing off $300 to 500 billion off GDP, and longer term, it reduces potential annual GDP growth to 3 percent from 4 percent.
Each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment, and shifts workers into activities where productivity is lower. Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP.
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