Thought the economy was taking off?! (Latest on the Consumer Index)

[bucknaked]

Trade Gap Widens, Consumer Confidence Off
Fri Feb 13, 6:13 PM ET


By Doug Palmer

WASHINGTON (Reuters) - The U.S. trade deficit widened nearly 11 percent in December as strong U.S. economic growth pulled in record imports and exports inched lower despite a weaker dollar, a government report showed on Friday...

...Meanwhile, a closely watched survey of consumer sentiment was sharply lower in early February, showing Americans turned increasingly cautious on the economy. Analysts say weak jobs creation has dampened consumer confidence despite a strengthening U.S. economy

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20040213/bs_nm/economy_dc_14

[alfredo]

1. the economy according to bush is the stock market and the

bank accounts of his wealthy friends. The economy for the rest of us is sucking hind tit.

[StClone]

2. So that weak dollar is not working

Gee Kudlow was pumping the low dollar as a cure all to trade. The dollars weakness has been around for months and the Trade Deficit is widening? The Greenspan/Bush idea of low interests/high Deficits/weak dollar are not working.

[stepnw1f]

4. What Amazes Me

Is the fact that while these guys play with their theories on economics, the rest of us are starving. It's just a game for them and a struggle to live for the masses.

Chess anyone?

[JPace]

3. Not being an economist or understanding much

about this would someone tell me where they
think we are heading with all these problems
In real words what is likely to be the conditions
and problems that common Americans are going to
be facing financially in the near future?

I keep hearing about...

1) a weakening dollar
2) job losses
3) a growing national debt
4) a widening gap between rich & middle class
5) growing trade deficits

[BillZBubb]

6. We are heading for an economic disaster

All of the items you mentioned are interrelated. As the national debt grows, the U.S. must continue to find more and more lenders willing to buy bonds. Under this mis-administration, much of that borrowing is now coming from foreigners.

According to the IMF (International Monetary Fund), U.S. net financial obligations to the rest of the world will equal 40% of total U.S. output in a few years. That is very dangerous. For instance, if most foreigners, because of a panic, decided all at once to sell their bonds the meltdown would be similar to 1929.

Another problem is that by sucking in all the available worldwide capital to support our borrowing binge, none will be available outside the U.S. for other countries and their companies. That means the whole world economy will be negatively effected--we're hogging all the investment capital. This leads to job losses in U.S. export industries--the few that are left.

To keep attracting new foreign lenders either U.S. interest rates must go way up or the value of the dollar must fall. Right now, BushCo is letting the dollar fall. That will eventually make imports into the U.S. more expensive again negatively effecting the rest of the world by reducing U.S. demand for their products.

As the U.S. allows its entire manufacturing base to leave, the trade deficits will be almost impossible to reduce, even with a lower dollar. That means more job losses even in the service areas as less and less American product is available for export.

The national debt is now out of control. Thanks to the ineptitude of the Bush* cabal, we have red ink rising as far as the eye can see. Even more dangerous is the unfunded liabilities held by the government. Right now we have about two times GDP in future obligations to Social Security, Medicare, and other pension programs. No money exists to pay for this. There will be no way to pay for it when it is needed thanks to Bush*.

The real disaster will not occur for over a decade. That is when the bulk of the boomer generation has retired. It will not be pretty--and it will be all Bush*s fault along with those idiots that voted for him.

[JPace]

7. I remember in the early nineties when all the talk was

about the growing national debt and how
it was going to ruin the economy....then it
just went away under Clinton. I think there is
some complacency with people now because of
that memory.

How will it be different this time?

[BillZBubb]

8. You are probably correct about the complacency

People quickly forget the political courage that the Democrats showed--and the huge price they paid--for getting the budget under control starting in 1993. They raised taxes on the high wage earners and then had to listen to Gingrich and Delay and Dole scream about the coming depression. As always the right wingers were wrong and the economy boomed.

Still, in 1994, the Repugs took over congress in good part because of the tax hike on the wealthy. They've held it since in spite of their being wrong at every turn on the economy.

I don't think it will be any different this time. If the Democrats do the right thing and clean up Bush*s mess, they'll get hammered for it by the right and the clueless voters. Sad, but true.

[JPace]

9. Next question....

If our dollar has gone down 18% or so and we
are not paying good interest rates....why are
foreigners still buying out debt?

[BillZBubb]

10. Attraction of debt

Suppose you are a country with a large balance of trade advantage against the U.S. That means you have a net inflow of dollars. The U.S. is buying more from you than you buy from them.

Since the U.S. trade deficit is as big as the budget deficit, there are many countries in this situation.

If so, what do you do with all the dollars you've got piling up? Basically, those dollars eventually have to go to some dollar denominated investment, otherwise the funds sit idle. U.S. bonds are considered a very safe investment. Therefore, a lot of that trade money comes back into U.S. bonds.

The drop in currency doesn't change that fact at all--it actually puts MORE dollars in foreign hands if trade stays the same or increases. That's because it costs more dollars to buy the same imported goods when the dollar drops.

Low interest rates only effect what percentage of the funds come back into treasury bonds. A good amount almost always will go to bonds--unless there is a financial disaster.

[JPace]

12. "If so, what do you do with all the dollars you've got piling up?"

I know I am naive but wouldn't it be private
businesses accumulating those dollars and not
the foreign government? If a private business
accumulates dollars wouldn't it be spent on
growing the business rather than buying American
bonds?

P.S. Thanks for your comments,

[BillZBubb]

13. Yes, the businesses get the $, but they don't keep them

The businesses almost always convert their dollars derived from export sales into the local currency based on the current exchange rate, usually through their banking partners. Those banks then can invest those dollars in U.S. assets, or exchange them at their country's central bank, or hold them as assets. It works the same here when U.S. companies get foreign currency. Import/Export banks exist just for this purpose.

The dollars are mobile and will work there way through the system. They must eventually find a way back into U.S. based investment or sit in a vault.

NOTE: this is note exactly what always happens. Some authoritarian regimes demand all U.S. currency to go through the central bank. That way they have "hard" currency to use for government purposes.

[Lefty48197]

5. Well duuuuuuuuuuuuuuuuuuuuuhhhh

didn't you hear about the 2003, 3rd Quarter GDP numbers?

[alcuno]

11. Listening to Moneytalk right now.

Brinker is a conservative and he has called this administration everything but treasonous.