Another Gloomy Article on US Trade/Budget Deficits

[Centre_Left]

If alarm bells are starting to go off in emerging markets, they are also starting to ring here in the U.S. Higher oil prices and an insatiable appetite for foreign goods is driving U.S. trade deficit higher. With the U.S. importing more expensive oil, our trade deficit will be heading higher in the months ahead. A 30% drop in the dollar since 2001 has failed to put a dent in our trade imbalance. This means the U.S. will need to attract a prodigious amount of foreign capital to help fund its twin deficits. Without that foreign capital, the dollar heads lower. The only way to attract more capital is to raise interest rates. However the higher interest rate rise, Greenspan and Co. risk bursting America’s multiple bubbles in mortgages, real estate, bonds, and equities.

(snip)

Companies, consumers, and investors are going to have to cope with higher inflation rates. This also implies collapsing values for anything associated with credit from autos and luxury goods to real estate. While there remains many similarities of today’s markets to the 1970s, there are also differences. One is that the U.S. imports more energy than it did during the 1970s. We are also heading towards peak oil production. The higher oil prices of the 70’s were a geopolitical concern. Today they are geological as well as geopolitical. There is less aboveground stockpiles of commodities. Our energy and commodity infrastructure, the basis of a modern industrial society has been ignored and allowed to go into disrepair. New energy and alternative energy sources will take time to find and develop. That is why commodity prices will only head higher in the years ahead. It is why Pimco has started a commodity fund. It is why investors such as Steve Leuthold is buying commodities and storing them in warehouses. It is also why the smart money has been moving into gold, silver, commodities and foreign currencies and hard assets. The Fed is behind the yield curve and so is Wall Street. It is time to get real as in owning real assets. The time is now before the stampede begins or the unraveling unfolds.

[Centre_Left]

1. Oops... forgot to post the link...

http://www.financialsense.com/stormwatch/oldupdates/2004/0618.html

[Doctor Smith]

2. I believe the trade deficit is the single largest threat to the U.S.

Month after month, year after year, we are transferring our wealth into the hands of foreigners at a large an exponentially accelerating rate.

If these huge deficits continue unabated, foreign governments will eventually hold so much US debt that they will have greater control over over our economy than does the Federal Reserve.

[Robert Oak]

3. same old stick your head in the sand

reminds me of the stock hype of the 90's, the 20's and so on.

It's clear the economic indicators are heading towards a disaster
yet pundits just keep selling American down the river and ignoring
what's going on...until after it happens at which point they will
attempt to write an article with an analysis and why no one was
taking action of course.