Beyond bull:Sky-high balance of payments deficits point to a coming crisis

[papau]

http://www.guardian.co.uk/economicdispatch/story/0,12498,1098229,00.html

Beyond bull

The US economy may look buoyant but sky-high balance of payments deficits point to a coming crisis, writes William Keegan

Tuesday December 2, 2003

The markets are bullish, the US economy is booming and everything is fine and dandy in the world economy. Or is it?...if any US or International Monetary Fund economist were to look at the trend of the US balance of payments (all flows of money in and out of the US) as a case study, not knowing it was the US, he or she would be advising very severe measures, which would not fit in too well with the presidential election timetable.

Consider the figures in the latest Organisation for Economic Cooperation and Development (OECD) economic outlook. The OECD is forecasting a current account balance of payments deficit for the US of 5% of gross domestic product (GDP) this year, 5% next year and 5.1% in 2005. <snip>

There is something very special about Republican administrations, is there not? In theory, and before they are elected, they believe in balanced budgets and sound money - or "sound money and lots of it" as people used to quip during the 1980s heyday of Milton Friedman's monetarism. In practice they let everything go haywire. Now some observers have suggested to me that there is no problem: after all, wasn't President Ronald Reagan criticised during the 1980s for the twin deficits (budget and balance of payments) but didn't the US and world economy thrive? The answer is: up to a point. The fact of the matter is that the borrowing spree on which the US administration has embarked makes the Reagan balance of payments deficits look like child's play.

During the dangerous days of the mid-1980s, the US recorded current balance of payments deficits of 2.8% of GDP in 1985, 3.3% in 1986 and 3.4% in 1987, after which they began to diminish. These are well below the figures quoted above for the current run of years, although the 1980s figures were considered alarming enough at the time. <snip>

This has already produced threatening noises from the European central bank, implying a tightening, or at the very least no loosening, of monetary policy. My conclusion is that we could be on the verge of a big currency and economic crisis, and the stock markets may have lost touch with the foreign exchange markets.

· William Keegan is the Observer's senior economics commentator

[T Roosevelt]

1. This is echoed in a book I'm reading

"The Dollar Crisis" by Richard Duncan. Great book - highly recommended, basically stating that we in the US in particular (and the globe generally) are going to be screwed in the near future. The trade deficit, our national debt and deficits, shifting of jobs and tax burdens, are all going to contribute to a recession (at the least) or a depression (worst case). I'm hoping to post an excerpt from the book (when I find time) that pretty much sums everything up.

[papau]

2. I look forward to reading your post on the Richard Duncan book.

How the US print and broadcast media can let this nation go to hell in a handbasket - while thinking that it is doing its job if it just kisses Bush's ass and promotes stories that do not cause loss of advertizing revenue bull shit memos from right wing editors and Board Members - is beyond me.

There was a time when media questioned and protected America - now they are the enemy.

[ramapo]

3. Ah the good ole days

How fondly I remember when the media was thought of as the "Fourth Estate".

Amazing what corporate ownership of the media will do. It's even better than an outright government takeover. (Well for those in power anyway)

Media giants give money to the politicians to get them elected, who then give the media more "freedom", and in return the media becomes just like
the VOA (Voice of America)...the unofficial propaganda arm of the govt.

[papau]

4. Media ignored tax cut economic result stats below:

Below: Some results of the great tax cut fueled recovery ignored by media


more than 2 million Americans having been unemployed for 27 weeks or more, according to the latest Labor Department statistics

several labor market indicators are worse than they were in March 2002, when the extended unemployment benefit program (TEUC) was initiated:


The unemployment rate is higher -- 6 percent vs. 5.7 percent


The number of unemployed is greater -- 8.8 million vs. 8.2 million


The number of long-term unemployed is greater -- 2 million vs. 1.3 million


The number of jobs available is smaller -- 130.1 million vs. 130.5 million

And the number of payroll jobs outside the farm sector is still 2.4 million lower than in February 2001, before the latest recession

Can we have some Morning in America media music please - as we ignore the Bush plan - hidden in the current budget bill of course - to end over-time pay for 8 million, and instead we media types have a discussion of how hard it will be to defeat Bush in 04 given the great recovery that is occuring?