Storm Clouds Over The US Economy

The reliance on consumer and government debt to produce and maintain the American economy has put that nation under a veritable storm cloud of trouble. It is the equivalent of Hurricane Katrina, and like Katrina America is ignoring their debt crisis until it actually hits home.

Soaring U.S. trade deficit a cloud over robust economy

By Paul Blustein

The Washington Post

WASHINGTON — The U.S. trade deficit soared to a record in 2005 for the fourth year in a row, according to a government report released Friday that provided a reminder of the dangers hovering over a generally robust economy.

The United States imported $725.8 billion more in goods and services than it exported last year, the Commerce Department said. That is up 17.5 percent from last year, and it is an all-time high not only in dollar terms but also as a proportion of the economy; the figure is equal to 5.8 percent of gross domestic product.

For December alone, the trade gap increased to $65.7 billion from a revised $64.7 billion the month before. That is the third highest monthly deficit ever.

In some respects, the trade deficit reflects the strength of the U.S. economy, at least relative to other major trading partners.

Ah there is always a silver lining in those economic storm clouds.......but wait till the levee breaks.

Because U.S. economic growth has been rapid in recent years, U.S. consumers are snapping up foreign goods of all kinds — autos, electronics and clothing being some of the biggest categories.

At the same time, relatively sluggish growth in economies such as the European Union and Japan has dampened demand for goods made in the United States. Thus even though U.S. exports rose 10.4 percent last year to $1.27 trillion, imports surged 12.9 percent to nearly $2 trillion.

The gap worries many economists because it means the United States must borrow heavily from overseas.

The dollars that Americans spend on imports are typically invested by foreigners in the bonds of the U.S. Treasury and mortgage agencies such as Fannie Mae and Freddie Mac, so the more the trade deficit widens and persists the greater U.S. indebtedness becomes.

That is why some analysts fret about a scenario in which foreigners would sell off U.S. securities en masse, causing interest rates to soar and the global economy to fall into recession.

America's economy is not driven by production, hence the less than devastating economic impact of the Ford and GM layoffs and the companies pending collapse into debt, but by credit card capitalism.

As Herr Dr.Marx formulated it M-C-M (Money-Capital-Money), money is making money in the casino capitalism of the American economy, that is until those who have invested decide to cash in their chips and go home.

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