Times have been good in the US economy. Home prices have been going up and we just cant seem to buy enough stuff, from new video games to imported cars to HDTV's.
But we consume more than we produce, more so every year. How long can that deficit continue? Our credit streak has gone on for years because we are the only international economy in the game - but can it last indefinitely? Are we pushing our luck too far?
It was an issue in September...
U.S. Current-Account Gap Widens
Wall Street Journal
September 19, 2006
WASHINGTON -- The U.S. reported that the deficit in its current account, the broadest measure of trade, widened further in the second quarter -- underscoring concerns about economic imbalances voiced by global finance ministers this past weekend.
Finance officials have long warned that the dimensions of U.S. borrowing from abroad -- reflected in the current-account figures -- threaten the stability of the world economy. The current account measures not just trade in goods and services, but also some financial flows; the deficit effectively amounts to how much the nation borrows abroad to finance U.S. consumers' appetite for imported goods and services.
Critics say huge current-account deficits, which approached $800 billion last year, can't be sustained forever and warn there may be a heavy price to pay -- in the form of higher interest rates and falling stock values -- if foreign investors ever decide to pull back.
U.S. Foreign Debt Shows Its Teeth As Rates Climb
Net Payments Remain Small But Pose Long-Term Threat To Nation's Living Standards
Wall Street Journal
September 25, 2006
Over the past several years, Americans and their government enjoyed one of the best deals in international finance: They borrowed trillions of dollars from abroad to buy flat-panel TVs, build homes and fight wars, but as those borrowings mounted, the nation's payments on its net foreign debt barely budged.
Now, however, the easy money is coming to an end. As interest rates rise, America's debt payments are starting to climb -- so much so that for the first time in at least 90 years, the U.S. is paying noticeably more to its foreign creditors than it receives from its investments abroad. The gap reached $2.5 billion in the second quarter of 2006. In effect, the U.S. made a quarterly debt payment of about $22 for each American household, a turnaround from the $31 in net investment income per household it received a year earlier.
The gap is still small within the context of the $13 trillion American economy. And the trend could reverse if U.S. interest rates decline. But economists say America's emergence as a net payer illustrates an important point: In years to come, a growing share of whatever prosperity the nation achieves probably will be sent abroad in the form of debt-service payments. That means Americans will have to work harder to maintain the same living standards -- or cut back sharply to pay down the debt.
"Our net international obligations are coming home to roost," says Catherine Mann, a senior fellow at the Institute for International Economics. "It's as if on our personal MasterCards we have run up large obligations and never had to make payments. You can't believe that's going to last forever."
If the trend persists, it could also raise concerns about the nation's creditworthiness, putting pressure on the U.S. currency. "It's an additional challenge for the dollar," says Jim O'Neill, chief economist at Goldman Sachs in London. "Economists have been warning about this for so long that people have gotten bored, but now we're starting to see the deterioration."
that continued to get worse in October
U.S. Trade Gap Widened in August
Oil, Chinese Goods Imports Pushed Deficit to a Record, But Pullback May Be Near
Wall Street Journal
October 13, 2006
The U.S. trade deficit jumped to a record $69.86 billion in August, powered by strong imports of consumer goods from China and the steep cost of imported oil.
The 2.7% increase from July kept the nation on track to shatter its record annual trade gap of more than $700 billion in 2005, the Commerce Department said yesterday. However, the data released yesterday offered some glimmers of hope that the trade picture might be poised to improve over the next few months.
U.S. imports totaled $192.28 billion in August, with shipments from China accounting for a big share of the monthly increase. The surge in imports from China helped push the U.S. trade deficit with China up 12% to a record $21.96 billion for the month, three times as wide as the U.S.'s trade gap with Japan, according to Commerce Department figures.
U.S. exports for the month grew to $122.42 billion, helped by increased shipments abroad of U.S.-made capital goods and industrial supplies, among other things.
