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US: The twin deficits « Previous | |Next »
October 15, 2004

Another day. Another coffee. More newspaper scanning. Another cake. The sun is shining, it is Friday and a weekend beckons. But I'm feeling gloomy.

The Senate news just keeps on getting worse.We can thank the ALP throwing its lot in with social conservatism in Victoria and Tasmania, thereby helping to pacify the Senate and undermine the checks and balances of federalism. Yet the ALP continues to spin itself as a progressive party. Who are they kidding? Themselves? The ALP's drift to the right has meant that it is now in bed with, and snuggled up to, Family First.

I'm also reading the financial press. The 3 Presidential debates hardly mentioned the twin deficits in the US or the rising protectionist sentiment in the US.

Yet the US trade deficit just keeps getting worse under the Republican administration. In August it was $US54 billion. And the US budget deficit just keeps getting bigger. It was $US24.36 billion in September, taking the fiscal year budget gap to a record $US413 billion. This represents 3.6 per cent of the total output of the world's biggest economy.

The US is an indebted superpower kept afloat by foreign investment by Asian central banks (formerly Japan, now China) who continue to finance the US' trade and budet deficits. When will the U.S. Treasury have to increase the interest rate on its debt to attract more foreign capital to fund its twin deficits?

The twin deficits are a sign that the United States is consuming more than it is producing, and requiring foreign investors to fill the gap with capital. Is this not unsustainable? Will it not further weaken the dollar, erode US living standards and destabilize the global economy?

Meanwhile the US labour market is showing few signs of creating new jobs, whilst the rising oil prices are going to place downward pressure on economic growth. And neither the President nor Congress are willing to make the tough decisions.

What in the heck is going on in the US? Surely the mood on Wall Street is becoming ugly? Surely. Big twin deficits. How come Wall Street is not calling for strong and resolute adjustment? Surely Wall Street realizes that the twin deficits could begin to slow down economic growth as interest rates begin to rise and as fewer benefits can be gained from global trade and investment due to the devalued dollar.

Surely Wall Street realizes that Japan may well determine that it no longer needs to support the dollar to protect its economic recovery. So who will continue to pick up the slack? China?

And Australia has hitched its wagon to the US wagon train with free trade agreement; we have integrated ourselves with an economy facing high interest rates, inflationary pressures, and low economic growth.

You can see why I'm feeling gloomy in spite of the glorious spring sunshine.

| Posted by Gary Sauer-Thompson at 6:13 PM | | Comments (1) | TrackBacks (2)
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» US: looming economic crisis? from philosophy.com
Whilst the Bush/Kerry camps bitterly battle it out in the last weeks of the American presidential elections, there has been a quiet and concern within Australia over the implications of the twin US trade and budget deficits. There is unease in the US a... [Read More]

» US: looming economic crisis? from philosophy.com
Whilst the Bush/Kerry camps bitterly battle it out in the last weeks of the American presidential elections, there has been a quiet and concern within Australia over the implications of the twin US trade and budget deficits. There is unease in the US a... [Read More]

 
Comments

Comments

> Surely Wall Street realizes that the twin
> deficits could begin to slow down economic
> growth

You're assuming that Wall Street actually cares about this country. Consider that more than 80% of the national debt is owed to foreigners. That should be lesson #1 on national sovereignty.

On short time scales, economies go on cylces of recession and boom, but along larger time scales they go through periods of destruction and rebuilding. In the past century it was the destructiveness of two world wars that defined the European economy of today. Perhaps the USA's past equivalents were the civil war and the great depression. This current economic downturn might be more along those lines than past recessions such as '82 and '92.

In a nutshell, if one world governance is gonna become reality, the USA needs a massive adjustment to fall in balance with the emerging economies of India and China. This is could be the reality of the current U.S. plight.