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Message-ID: <8d358067050218070059a07b2e &AElig mail.gmail.com>
Reply-To: Lisa Hsu <lisashoe &AElig gmail.com>
In-Reply-To: <3f374d648936bee4b4c4f7d40b9183a3 &AElig umich.edu>
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Date: Fri, 18 Feb 2005 10:00:54 -0500
To: Dave morris <thecat &AElig umich.edu>
Cc: improvetheworld &AElig umich.edu
From: Lisa Hsu <lisashoe &AElig gmail.com>
Subject: Re: Disaster looms for the US Economy
Status: O

there was an article recently in the NYT international edition talking
about the inevitability of the US's fall (not us specifically, but
that all superpowers fall eventually), and the question was how we
would fall.  over the span of 50 years?  or over the span of 5? 
basically, their premise was that an inadequate balance of spending on
the military, saving, and investment spelled faster doom, whereas a
good balance yields staying power.

one of their examples was the rapid fall of britain from superpower
after wwII because they could just not deal with the massive amounts
of money spent on the two world wars.

this trade deficit and budget deficit seems to me a good way to fall
fast, and soon.    this has been bothering me for the last two years,
and it only seems to be getting worst.  ack!!!


On Sat, 12 Feb 2005 01:33:32 -0500, Dave morris <thecat &AElig umich.edu> wrote:
> This is a good article about our trade deficit, and it's implications.
> Not only are we screwed because we're not really very competitive in
> the global market in any sector anymore (or are heading that way), but
> the world is screwed because much of it depends on our rampant
> over-consumption which we cannot sustain. On the other hand, we've had
> an unfair advantage and used more than our share of the planet for some
> time now, so it's good to see the end of that coming. Kind of like the
> fall of Rome. A lot like that, actually. I vote for China as the next
> new power, especially if they get their nuclear reactors online before
> the collapse. Regardless the next few decades should be exciting. In
> the meantime I'll continue to work on ways to get off planet. :-)
> 
> Dave Morris
> University of Michigan EM PhD candidate, aka thecat &AElig umich.edu, aka
> KB8PWY
> home: 734-995-5525  office (2104 SPRL): 734-763-5357  fax: 734-763-5567
> 
> http://www.americaneconomicalert.org/view_art.asp?Prod_ID=1277
> 
> New Trade Deficit Figures Turning US Economy into a Disaster Movie
> Alan Tonelson
> Friday, February 11, 2005
> 
> This week Washington issued a report on America's trade performance
> that only an Irwin Allen could love. You remember Allen, right? The
> master of 1960s and 1970s cinematic extravaganzas like "The Towering
> Inferno"and "The Poseidon Adventure"?  Well, the year-end 2004 trade
> figures published on Feb. 10 by the Department of Commerce are the
> economic equivalent of a disaster movie.
> 
> New records were set all over the place – but not the kind any well-run
> economy would seek. The overall 2004 U.S. trade deficit (goods and
> services) hit a record $617.7 billion, shattering last year's record of
> $496.51 billion by a staggering 24.4 percent. In yet another new
> record, the  deficit's share of the U.S. economy jumped from 4.5
> percent in 2003 to 5.3 percent in 2004.
> 
> Total exports of goods and services rose $125.6 billion to $1.146
> trillion, an increase of 12.3 percent. Could this be a sign that the
> dollar's recent weakness against most major currencies is finally
> giving U.S.-made goods a price advantage in world markets?  Maybe.  But
> why, then, did total imports of goods and services rise $246.9 billion
> (roughly twice the export increase) to $1.764 trillion, an increase of
> 16.28 percent?  Why didn't this price advantage seem to matter much at
> home, where imports continued to eat into domestic producers' sales and
> employment?
> 
> Many analysts put much of the blame on oil, and the final 2004 figures
> clearly show that America's addiction to oil imports continues to
> intensify.  The oil trade deficit worsened by a stunning 36.21 percent
> last year, to $164 billion, reflecting not only increased volume
> imports but much higher prices. Yet the non-oil goods deficit rose
> 18.35 percent – a hefty gain – and is nearly three times larger.
> Clearly, America's trade problems are much more than an oil problem.
> 
> To no one's surprise,  the U.S. deficit in manufactures continued to
> soar, increasing 17.6 percent in 2004, from $469.45 billion to $552.06
> billion. 2004 exports did rise $65.49 billion, or 11.4%, to $623.44
> billion. The weak-dollar effect again? Again, maybe. But again,
> seemingly beside the point, as the much larger volume of imports
> increased by $148.1 billion, or 14.42 percent, to $1.176 trillion.
> 
> Since manufactures dominate U.S. trade flows, new confirmation that
> imports not only dwarf exports but are rising considerably faster
> underscores a critically important message: With one exception, neither
> the weak dollar nor any other touted hope or strategy has a prayer of
> restoring sustainability to America's international accounts. And the
> one exception is a deep, prolonged economic downturn.
> 
> Certainly, no one should look to the service sector to rebalance the
> trade flows. Services are almost universally trumpeted as not only the
> inevitable future of the American economy, but its best hope for future
> prosperity. The longstanding U.S. services surplus, however, is rapidly
> becoming history. Between 2003 and 2004, this surplus shrank by just
> over five percent, with imports growing about one third faster than
> exports. More disturbingly, the decline of the service sector surplus
> since 2002 has been a whopping 20.77 percent. The unavoidable bottom
> line: U.S. competitiveness in this sector is faltering badly.
> 
> Even worse is the news about the "other private services" category,
> which includes high-paying info-tech and professional services work.
> This sector of the economy employs America's best and brightest, and
> pays its highest wages.  Yet this longstanding surplus has been eroding
> steadily as well – by 1.92 percent since 2002, to $47.99 billion.
> 
> Such a decline may seem modest and indeed hardly newsworthy at all. But
> in "other private services," the United States and its providers should
> be wracking up large and rising surpluses. Otherwise, the numbers of
> Americans who can expect employment as software engineers, network
> administrators, financial analysts, lawyers, and doctors, may remain
> stuck at current levels. And if employment in these sectors rises, the
> reason is likely to be that American pay levels have sunk toward the
> much lower global norm.
> 
> Humongous U.S. trade deficits with China are no longer news, but the
> 2004 China figures give pause nonetheless. The China goods deficit rose
> from $124.1 billion to $162 billion, a $37.9 billion increase, or 30.53
> percent This is a faster increase than that of the overall U.S. goods
> deficit. As a result, the China goods deficit currently makes up fully
> 28 percent of the total global U.S. goods deficit. (Country-by-country
> figures for 2004 services trade are not available yet.)
> 
> For some reason, globalization cheerleaders look at a Chinese economy
> growing at near-double digit rates and view its modest recent deficits
> and surpluses as a sign that China has become a major engine of growth
> for the rest of the world. What they conveniently forget is that an
> economy growing that fast should be in deep deficit with the rest of
> the world; it should be sucking in net imports like crazy. China's
> more-or-less evenly balanced trade with the rest of the world is
> glaring evidence of its mercantilist trade practices, and of its role
> as a major drain on the world's wealth-creating capabilities along the
> lines of Japan in recent decades.
> 
> Of course, America's trade with China is anything but balanced. U.S.
> exports to the People's Republic did rise in 2004 by $6.4 billion to
> $34.7 billion, an increase of 22.6 percent. But the much greater tide
> of U.S. imports from China rose $44.3 billion to $196.7 billion, a
> 29.07 percent jump.
> 
> Meanwhile, U.S.-European trade trends should be driving a stake through
> the heart of weak-dollar hopes. The Euro has been the currency against
> which the dollar has been weakest for two years. Yet the U.S. goods
> deficit with the Euro area (those European countries that have actually
> adopted the Euro) climbed $8.85 billion in 2004, a 11.95% increase.
> Exports rose $14 billion (a 12.4 percent increase), while imports rose
> $22.86 billion (a 12.2 percent increase).
> 
> Since new exchange rates almost never produce immediate or rapid
> changes in purchasing and importing patterns, some lag between the
> dollar's weakening and a narrowing of the trade gap with
> strong-currency countries has to be expected.  Indeed, if a
> weak-currency country has to import goods even though their prices rise
> (e.g., because these goods are no longer made domestically), the trade
> deficit may increase for a while. Economists call this delayed swing in
> the trade balance the "J-curve" effect.
> 
> At the same time, a weakening currency also may not affect trade
> balances much because the strong-currency country may have in place
> formidable trade barriers that restrict the weak-currency country's
> exports. And the J-curve could take many years to play itself out.
> Americans have consistently experienced this problem with Japan. The
> Euro area might be an exception, but the jury is still out.
> 
> The possible limits of the weak-dollar policy become even clearer from
> examining America's trade with Canada.  Despite the Canadian dollar's
> major appreciation against the greenback, the total U.S. goods deficit
> with Canada climbed $14.1 billion in 2004 to $65.77 billion. This 27.3
> percent increase was nearly as fast a rise as that of the U.S. goods
> deficit with China – which brazenly manipulates its exchange rate.
> Exports rose $20.24 billion to $190.16 billion (an 11.91% increase),
> while imports rose $34.33 billion to $255.93 billion (a 15.5%
> increase).
> 
> The U.S. trade patterns revealed by the final 2004 trade figures are a
> national disgrace and a global danger. They remind us once more how
> perilously dependent the world has become on U.S. consumption, and yet
> how America's ability to finance this consumption responsibly keeps
> eroding. Maybe the nation's globalization cheer-leading political and
> economic establishments think that, like disaster movies, this story
> ultimately has a happy ending. When will they realize this isn't
> Hollywood?
>