Some have blamed the rest of the world for the rapidly growing U.S. current account deficit.
But I believe that the true explanation is to be found here at home.
Brad Setser doesn’t look like a menacing guy, but he sure can write some scary stuff. When
U.S. residents purchase more in the way of goods and services than we produce domestically, we
have to import the difference. That creates a current account deficit, and the imported goods
must be paid for somehow. The bigger the U.S. current account deficit, the more U.S. residents
must either borrow from foreign lenders or else sell off assets.
Brad is alarmed at the magnitude with which this sell-off has been occurring and will need
to continue in the future if the deficit keeps growing:
If the US wanted to fund its current account deficit by selling equity, it would need to sell
off the equivalent of 40 Unocal’s a year — whether [to] Chinese state firms, European firms,
Japanese insurers or Saudi princes. That is a lot. But a $800 billion current account deficit is
— as I consistently try to note — really, really enormous.
Brad attributes the following observation to
Peter Schiff
(so maybe I should blame Peter for really scaring me):
To put this number in its proper perspective, $800 billion is equal to the combined market
capitalization of the following fifteen Dow Jones companies: Alcoa, American Express, Boeing,
Caterpillar, Coca-Cola, DuPont, General Motors, Hewlett-Packard, Home Depot, Honeywell, 3M,
McDonalds, Merck, SBC Communications, and Walt Disney.
In other words, we’d have to sell off half the companies that make up the Dow Jones
Industrial Average in order to pay for just one year’s worth of that projected current account
deficit.
Just how did we get into this mess? One very natural hypothesis is that America is
borrowing so much as a nation because our federal government is borrowing so heavily to finance
its huge budget deficits. Although I have no doubt that this is contributing to the problem, I
am forced to conclude that this is not where our difficulties truly began. The graph at the
right tracks the U.S. current account deficit over the last decade. The rapid increase in the
current account deficit actually started in 1999, a time when the federal budget was in surplus.
By the time George Bush was inaugurated, we were already more than halfway into our present
predicament.
Another potential explanation that turns out not to fit the facts is the big increase in oil
prices over this period. The U.S. is importing about 12 million barrels a day now, which means
that each $1 increase in the price of oil adds another $1 billion to our import bill each
quarter. Oil prices started rising rapidly in 1999, the same time that our current account
started to deteriorate so rapidly. In addition to paying more per barrel, the number of barrels
we import keeps going up. Although oil imports would seem to give a qualitative fit to the
facts, quantitatively they’re just not big enough. The above graph shows that even if the
dollar value of petroleum imports today had stayed at the same value as in 1998, we would still
have seen a rapid increase in the current account deficit over this period.
So what did happen in 1999 to send the U.S. current account deficit suddenly heading for the sky?
When you look at the U.S. national income accounts for that year, the answer seems pretty clear.
In 1999 personal disposable income rose $300 billion, but consumption spending went up $400
billion. Spending an additional $100 billion beyond what we produced domestically could account
for all of the increase in the current account deficit and borrowing from abroad that we
observed in 1999.
What happened in 1999 was a sharp acceleration of the downward trend in personal saving rates
to which Brad
DeLong has long been calling attention. For some reason the personal saving rate, which had
been hovering at about 4% in the mid 1990’s, suddenly nose-dived to around 2% in 1999 and has
drifted down further since.
| Year | Actual current account deficit | Personal disposable income | Personal saving rate | Missing saving | Oil imports | Hypothetical current account deficit |
|---|---|---|---|---|---|---|
| 1998 | 187.4 | 6395.9 | 4.3 | — | 50.6 | — |
| 1999 | 273.9 | 6695.0 | 2.4 | 107.1 | 67.8 | 149.6 |
| 2000 | 396.6 | 7194.0 | 2.3 | 122.3 | 120.2 | 204.7 |
| 2001 | 370.4 | 7486.8 | 1.8 | 164.7 | 103.6 | 152.7 |
| 2002 | 457.7 | 7827.7 | 2.0 | 156.6 | 103.5 | 248.2 |
| 2003 | 510.9 | 8159.9 | 1.4 | 212.2 | 133.1 | 216.2 |
| 2004 | 636.1 | 8646.9 | 1.3 | 233.5 | 181 | 272.2 |
That leads me to ask the following hypothetical question. Suppose that instead of plummeting
in 1999, the personal saving rate had held steady at 4%. Let’s take personal disposable income
for 1999 as given. If consumers had saved 4% of that income rather than the 2.4% as actually
occurred, the result would have been $107 billion more in private saving. If this translated
one-for-one into reducing imports, it alone could account for more than all of the increase in
the current account deficit observed in 1999.
I repeated these calculations for each year since 1999 in the table on the right. In
addition I calculated the difference between the value of oil imports for that year and their
value of $50.6 billion in 1998. Subtracting both numbers from the actual current account
deficit, we arrive at the number reported in the far right column of the table labeled the
“hypothetical current account deficit.” This represents what the current account deficit would
have been if personal saving had not gone down, oil imports had not gone up, and nothing else
had changed. The calculations show that, under this hypothetical scenario, the average current
account deficit of the last 6 years would have been $207 billion, or about the same as it was in
1998.
Granted, these hypothetical calculations are not an altogether satisfying answer, because in
reality, if private saving or oil imports had not followed their historical path, other elements
of the national income accounts would surely have been different as well. For example, if the
value of what we import from the oil producing countries had been less, the value of what we
export to them would have been less as well, in which case the current account deficit might be
substantially higher than that calculated from the above “what if” experiment. Nevertheless,
these calculations suggest to me that the magnitudes are in the right ballpark to support the
claim that a major part of the rise in our current account deficit can be attributed to a fall
in the U.S. personal saving rate and an increase in the amount we pay for oil imports.
It is one thing to identify where our problem came from. It is another matter to figure out
how to fix it. If anybody has a plan to bring the U.S. personal saving rate back up to 4%, or,
better yet, the 8% value of 1992, I’m all in favor of it. And likewise, constructive
suggestions about how to bring the amount the U.S. spends on oil imports back down are always
welcome. In the mean time, it seems wise to do what we can to bring the federal government
budget deficits back down, and quickly.
great blog Professor Hamilton – thank you.
I worry a little though about the suggestion that you would favour any plan to raise the savings rate and cut oil imports – presumably there are a number of draconian possibilities that would be all too effective (e.g. savings rate would probably rise and oil imports would fall in a severe recession caused by a confidence crisis caused by unfortunate macroeconomic policy)
National Hog
Econbrowser concludes, that “…a major part of the rise in our current account deficit can be attributed to a fall in the U.S. personal saving rate and an increase in the amount we pay for oil imports.” He recommends measures…
Thanks for calling my attention to the need to qualify my remark, David. I take it as given that there aren’t any easy and obvious policies that would raise the saving rate or lower oil imports, and certainly you’re right, there would be many proposals that might intend to accomplish these objectives of which I would disapprove. By contrast, it’s pretty clear what policies would reduce the government deficit. So my intended point was, let’s start with the budget deficit, while keeping our eyes open to the fact that there are some more systematic structural concerns that are really the root of the problem. I shouldn’t have said that I’m open to any proposals about the saving rate, when what I really meant was, I’m open to any good proposals.
I have to say, looking at your chart, that it is hard to see either a sudden acceleration in the downward trend in 1999 or a period of hovering at 4% in the mid 90s. At least, those features if present appear to be lost in the noise of what is a very clear and obvious linear trend that goes back to the early 1980s. You can draw a straight line from about 1984 to the present day and it fits the curve very well, falling to zero right about now.
My only question is, what happens when the personal savings rate goes negative? That ought to happen in a year or two, if we extrapolate the graph forward.
The graph plots quarterly data, which do exhibit some ups and downs. Here are the corresponding annual figures:
1994 4.8
1995 4.6
1996 4.0
1997 3.6
1998 4.3
1999 2.4
The drop between 1998 and 1999 is almost four times as big as the cumulative drop from 1994 to 1998. I agree with you, Hal, that the long-term decline is in many respects the biggest part of the story. But I also believe that the specific decline beginning in 1999 is a big enough jump relative to that trend to account for the simultaneous jump in the current account deficit.
I seem to recall that interest rates went up in 1999 and everyone with a variable rate loan was screwed… money shifted to paying housing costs and savings went bye-bye…. then when the rates dropped, everyone refinanced at low rates, but the rates were low so there was no incentive to save. Also, if I recall, even in 1999 when the fed raised interest rates the banks didn’t pay much more interest on savings accounts, and since you couldn’t get a decent rate of return in comparison to inflation, there wasn’t any point in saving. So you took out equity loans and spent that. At least, that’s what *we* did… and they were tax deductible, to boot.
(I can’t seem to get html or just plain paragraph spacing to work) I am not an economist, so I guess that should mean that I would read such posts by you and Mr. Setser and get worried. But I can’t help but have a contrary reaction to the alarm over the current account deficit. One problem I see with your argument is that it posits that the cause of the problem is lower domestic savings. But this an argument by arithmetic or accounting. It doesn’t really answer why.
I found via this blog (http://www.institutional-economics.com/index.php/section/rba_governor_macfarlane_on_global_imbalances/ )
a link to this speech ( http://www.rba.gov.au/Speeches/2005/sp_gov_120505.html)
by Ian Macfarlane from the Reserve Bank of Australia. In the speech, if I understand him, Macfarlane argues that a key determinant in the US current account deficit is the aftermath of the Asian crisis in 1997/8. He argues that the key reason for Asian central bank dollar accumulation is to prevent another such crisis. He also seems to believe that it is the countries with the account surpluses that have the problem (like Australia in the 1970s), and that the US, with its developed financial system, does not. One reason I find his argument more plausible is the timing of it. Looking at your deficit graph, the deficit starts shooting up just after the Asian crisis. But personal savings started falling before that (1993-1997) without much of an increase in the deficit. I think it is also reasonable to argue that the reason that personal savings dropped after 1998 is for related reasons (i.e. cheap loans making returns too low to even bother saving but making home “investment” relatively attractive).
I also like the quote Macfarlane made in 1998 about a sort of neo-mercantilism arising in Asia. This is how my own intuition makes sense of these large trade imbalances. I think the foreign central banks are really misguided in the medium and long term. Mercantilism didn’t work out well before, but if you are accumulating paper currency instead of gold, it makes even less sense.
Let me ask a stupid question … well, two stupid questions.
First, there’s a causation problem with looking at the capital and trade accounts because they are two sides of the coin. Yes, one can always look at a capital surplus and break out the elements of a trade deficit to match it … but one can also do the same thing going the other way, so what’s the causation? To find that one has to look at something other than identities and equalities.
E.g., interest rates. Thinking at an A-B-C level of sophistication, I’d imagine that if a really big player in an economy (like the US) suddenly stopped saving and shifted to big-time borrowing to fund boosted consumption, then, other things being equal, interest rates would go up.
But if on the other hand the supply of borrowable funds rose dramatically for some reason, then, other things being equal, interest rates would go down for that big player, thus tending to reduce its savings increase its consumption.
Now today I’d guess long rates are maybe 1.5 or 2 points lower than we’d normally expect.
So my stupid question #1 is: does the level of interest rates tell us anything about the relevant causation? I haven’t seen anyone discuss this point directly.
My stupid question #2 relates to Mr. Messina’s point. A lot of people are describing a Chinese (Japanese, Asian) policy that is basically modern Mercantilism. E.g, the Chinese are basically using their people’s high saving rate to buy US dollars to finance cheap exports to the US and lower US interest rate — both good for the US.
Let’s grant that the flip side for the US is that all the problems and risks that result from the resulting ballooning US trade deficit and debt position are real.
Still, at an A-B-C level again, my reading of Adam Smith is that “Mercantilism always loses”. So my question #2 is, is the Modern Mercantilism charge true … and if so, aren’t the Chinese (Asians) taking on problems and risks even greater than ours (which I haven’t really seen discussed anywhere)?
No theory about what other people do can explain or excuse one’s own debt. There is no doubt where the fault lies, even if smart people postulate this and that. Glad Prof. Hamilton is suggesting we look in the mirror, unlike dangerous people like Bernanke.
One thing is clear to anyone who can get his head out of the confusing mass of theories and statistics thrown around. The American consumer is on an unsustainable consumption and debt binge.
And the cause of this lies clearly with the Fed and to a lesser extent the executive branch. After a bubble where people have understandably lost their heads, letting them suffer a hangover is required to bring people back to their senses. Instead these geniuses pulled out all the stops to keep the binge going and the consumer spending. Yes, keep the booze flowing so no consumer has to wake up and save anything. Its unbelievable how a central banker can talk about stimulating consumption after a bubble, and pretend that is what central bankers should do.
As the Daily Reckoning put it, Americans do not need any help consuming. They can consume with their eyes shut. Seems the Fed should have been helping them stop consuming instead. Therein lies the crux of the problem, a belief by our great central planners that consumption is a path to greater fortune.
The 99-00 surge reflects the fall in personal savings, the lagged impact of asia’s crisis and the .com investment boom — all of which overwhelmed the increase in fiscal savings (itself a product in part of the investment boom/ consumption boom). but i think you may be discounting the role the surge in the fiscal deficit played from 01-03 — normally a recession, particulary one that decimated investment, would tend to produce a sharp improvement in the current account deficit. one also would have expected asia to have rebuilt their balance sheets, and thus to start running smaller surpluses. neither happened, setting the stage for the deficit to balloon with the recovery in investment spending (mostly residential investment).
re: oil, i think the surprising thing is that higher spending on oil imports has not crowded out spending on other imports, or other consumption goods — the reason why is the one you noted. savings kept on faling.
clearly, with a current account deficit of 6.5% of GDP, heading to 7% and a fiscal deficit of only 3%, fiscal is not the entire story. but the swing from structural surplus to structural deficit from 01 to 03 does help to explain why the current account deficit did not improve — and a stronger cyclical improvement now would help as well, tho one can debate how much
JDH:
Do you have any rough estimates of the total capital stock in the US?
At $800 billion/year, how long before everything is foreign owned? 🙂
Switching gears slightly, I tend to be a bit Austrian in my outlook, that is, I try to understand macroeconomies in terms of individual human action. So, given that Americans are consuming more and more, saving less and carrying more debt, my question is, for the average person, is that debt ever going to be paid off? Will people simply carry debt to the grave, and have their life insurance policies or estates pay it off?
I think those are oustanding questions, Jim Glass. U.S. interest rates rose during 1999-2000, consistent with my story, and fell 2000-2003, consistent with your story. Of course, we have to factor in the Fed in that discussion as well. Some very smart people are reasoning just the way you have, for example, Ben Bernanke’s remarks at http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/default.htm, and he’s as sharp as they come. Perhaps I will have a chance to talk about these issues in a later post.
As for China’s mercantilism, our current account deficit with China is far bigger than China’s current account surplus with the world as a whole. So they’re only using a relatively small part of what they get from us to buy up the likes of Unocal. Bigger chunks of those dollars the Chinese get from us go to buy things like oil from the Middle East and electrical equipment from Japan, and it’s the Japanese and the Saudis who are doing the saving that balances the U.S. current account deficit. So, I think the Chinese success comes not from mercantilism, but rather from the fact that they’re extremely efficient at transforming Saudi oil and Japanese equipment into things like toys to sell to the U.S.
Barry, U.S. private nonresidential fixed capital might be worth about $12 trillion.
I should emphasize that, so far, most of the current account deficit is being financed by borrowing (particularly foreign acquisition of U.S. Treasury debt) rather than large-scale selling of U.S. corporations. But describing the size of the changed indebtedness in terms of such sales helps us to appreciate the magnitude of the numbers we’re talking about.
Also, my concern is not so much with the current stock of outstanding debt that we or future generations must pay, because against this you have to balance the current stock of foreign assets owned by the U.S., which is another enormous number. Brad Setser is also a good source for discussions on this, for example, http://www.roubiniglobal.com/setser/archives/2005/06/us_net_debt_on.html. Rather, my concern is with the magnitude of the change in these numbers that we’re talking about seeing if the deficits continue much longer.
It would be interesting to calculate the negative consequences of the Fed’s positive efforts to engineer “soft landings”.
Although hard landings have plenty of negative consequences that we thankfully seek to avoid, there are equally many positive, rejuvinative consequences of old-fashioned, hard-landing recessions.
A key downside of a soft landing is that a lot of weak companies survive, making it more difficult for even the stronger companies to zoom back up to cruising speed.
In theory, where are we supposed to see the incentives for new growth come from after a soft landing?
I wouldn’t advocate moving away from soft landings, but I would advocate an open discussion of their negative consequences, which do appear to be the elephant standing in the middle of the room that people avoid talking about.
— Jack Krupansky
Does this make sense?
Displacement of domestic productive inputs leads to lower propensity to save:
As the Asian currency crisis created stronger demand for US Dollars in Asia, it thus lowered the cost of foreign inputs to production, and as such, either forced the cost of domestic inputs down, or else replaced them.
With less demand for domestic inputs, those who earn their living from these demands, wage and salary workers, lose income.
As it is well known that propensity to consume has quite a good deal of inertia, wouldn’t such a loss of income thus cause a decrease in savings?
A quick look at the National Income and Product Accounts Table shows, between 1998 and 2004 Wage and salary accruals fell 2% (.0198) as a percentage of National income.
Certainly the first step is looking at the negative consequences of soft landings. I would agree that is a key question economists need to, but dont think about.
Soft landings are the modern day equivalent of socialist central planning. Free markets were shown to be the better path, after over 50 years of costly experiments in central planning. We’re seeing a similar pattern here with all those smart meddlers doing costly experiments in central planning. And don’t take any comfort the fact that is only on monetary policy.. Lenin had noted that the surest way to destroy a capitalist society is to debauch the currency.
I see one big mitigating factor, US holdings abroad:
http://www.bea.gov/bea/newsrel/iip_glance.htm
US owned assets abroad amount to some $9 trillion, foreign owned US assets to some $11.5 trillion.
This helps in two ways:
a) Interest rates / investment returns are higher for US owned assets abroad than they are for foreign owned US assets, SO:
http://www.bea.gov/bea/newsrel/transnewsrelease.htm
“Income
The surplus on income increased to $3.8 billion in the first quarter from $3.2 billion in the fourth.
Investment income
Income receipts on U.S.-owned assets abroad decreased slightly to $105.2 billion from $105.4 billion.
Income payments on foreign-owned assets in the United States decreased slightly to $100.1 billion from $100.7 billion.”
You read that right, the US has an income surplus in spite of being in “debt” (having a negative net investment position) to the tune of more than $2 trillion. If you crunch the numbers the net return for foreign owned US assets is around 3.5%, but it’s closer to 4.5% for US owned assets abroad, and therefore Americans are making slightly more on their $9 trillion of investments abroad than foreigners are making on their nearly $11.5 trillion of US investments.
b) The investments are largely denominated in local currency. SO, if the Dollar halved in value, foreign owned investments stay at $11.5 trillion, but US owned investments abroad … double to $18 trillion.
This is an enormous advantage compared to recent debt crises. Those countries had their debts denominated in foreign currencies, so when the countries devalued, the value of the debt went up in relation to their GDP. In the case of the US, however, the net investment position relative to GDP improves massively when the US Dollar goes down.
Is $800 billion a lot? Well, how about:
Is $18 trillion a lot?
AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS;
BY ADAM SMITH, LL.D. AND F.R.S. OF LONDON AND EDINBURGH:
FORMERLY PROFESSOR OF MORAL PHILOSOPHY IN THE UNIVERSITY OF GLASGOW
EDINBURGH: 1776
BOOK II. OF THE NATURE, ACCUMULATION, AND EMPLOYMENT OF STOCK.
CHAPTER III. OF THE ACCUMULATION OF CAPITAL, OR OF PRODUCTIVE AND UNPRODUCTIVE LABOUR.
But though the profusion of government must, undoubtedly, have retarded the natural progress of England towards wealth and improvement, it has not been able to stop it. The annual produce of its land and labour is, undoubtedly, much greater at present than it was either at the Restoration or at the Revolution. The capital, therefore, annually employed in cultivating this land, and in maintaining this labour, must likewise be much greater. In the midst of all the exactions of government, this capital has been silently and gradually accumulated by the private frugality and good conduct of individuals, by their universal, continual, and uninterrupted effort to better their own condition. It is this effort, protected by law and allowed by liberty to exert itself in the manner that is most advantageous, which has maintained the progress of England towards opulence and improvement in almost all former times, and which, it is to be hoped, will do so in all future times. England, however, as it has never been blessed with a very parsimonious government, so parsimony has at no time been the characteristical virtue of its inhabitants. It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the
importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.
http://www.adamsmith.org/smith/won-index.htm
Too many economists and not enough salesmen. The way out of the current account problem is to sell more – that can happen either through good products at fair prices or thorough some arm twisting by the pols.
As for the savings rate issue, who is going to save money in dollars with negative real interest rates and a risky currency.
These problems can be solved by putting in an accounting system at the border whereby every country needs to run a current account balance or there will be tarriffs to adjust the difference. That program will work as long as the US military keeps everybody in order. In 20 – 30 years after the Chinese won’t abide by that formula any more, we, in the US, will have a big problem.
But is that true? Doesn’t that require that, for example, the cost that Nike pays for the sneakers made overseas is the price it charges? But that’s not what happens. Nike imports into this country at a low price, marks up enormously, and sells the sneakers. For imports to go down as far as you posit, consumption cuts would have to be much, much deeper.
Catching my eye: morning A through Z
The blogosphere is slowly recovering from the long Fourth of July weekend. Here’s what’s caught my eye this morning: CR of Angry Bear has an update on the housing bubble (if there is a bubble, of course) and brings up…
“Where did that huge trade deficit come from?”
Aside from some gains in consumption, the answer is fairly simple.
Trade policy. Domestic and foreign trade policies.
But no one posted a single comment about these trade subjects.
(remove at to reply by email)
The fall in savings rates has a common causative factor across Canada, the UK, the US and Australia:
– the rise in housing prices
Since most consumers own their own homes, the rise in housing prices makes them feel better off, and ‘richer’. The US has the most efficient capital market in consumer credit (and the UK and Canada and Australia are not far behind) and makes it easy for consumers to tap that wealth.
It is therefore no surprise consumers save less, as they feel wealthier.
Something similar happened in Sweden (and the UK) in the late 80s until the housing crash.
Consumption then fell well below trend income until the mid 90s in both countries.
The US is very likely to undergo the same process with a very painful correction to consumer spending. Once housing prices stop going up (and they normally fall if they stop going up) then the consumer will feel less well off and spend less of her income.
Probably a very significant shift from untradable to traded goods production goes on at the same time: usually achieved by a large currency devaluation. This again is what Sweden did and what the UK did post the 1992 crash out of the ERM (‘Black Wednesday’). Put it another way: real estate agents and mortgage issuers lose their jobs, and timber companies (and Boeing) hire people.
does personal savings include 401K and other pension plans?
Yes, 401K and employer contributions to pension plans are included in the definitions of personal income and personal saving.
Maybe it’s simply that the participation in the asset markets by large Asian nations, has forced the real rate of return to the point that consumption is preferable to investment.
It’s not a moral failing; it’s just supply and demand. China stops buying treasury bonds, and rates rise. At some level, the consumer will save rather then spend.
I’m not one for scare-mongering. Too many are pouring out doom-and-gloom who poured out the sky’s the limit in 1999. Thus, I agree with the contrarian commentors here.
I’d rather be in our position in the US than China’s -a current account deficit while we export high value knowledge, innovation, services and big equipment and tech and import toys, food, clothing and the like.
The Chinese are bottom feeding our companies – commodities like white box computers, white goods and oil – big deal.
Where did that trade deficit come from? I am not an economist, but isn’t the answer simple: american consumers buy too many foreign goods. Instead of buying Honda’s and Toyota’s, people should buy Ford and GM cars. Instead buying foreign oil, people should insist on US oil or alternative fuels (made from biomass or coal in the US).
Speaking of oil, the quoted daily import rate of 12 million barrels at a price of $60 contributes to the trade deficit the staggering sum of 263 billion Dollars – almost one half of our trade deficit. If prices reach $200 per barrel, then the cost of importing 12 million barrel daily reaches the sum of 880 billion Dollars. The trade deficit will then exceed $1 trillion. As large as this figure looks, there is nothing to worry about given the tremendous productivity of our economy. We will outgrow all these deficits and achieve unimaginable surpluses one day. It may take more than 100 years to achieve this, but it will happen eventually. Just be patient!
I am not a professor of economics, nor a CPA……a simple person reading the more learned remarks for my benefit. On a simplistic level…….if I personally acquire more through debt, it is true I have these things, but I also have to expend more energy to pay for the prinicpal of these things plus the interest. If I am expending to much energy to aquire things, I will eventually stop and pay off what I have acquired through debt. Don’t you think it is true that at some point that we will be expending to much energy to aquire energy to produce the items we want? Is there a inflexion point when we eventually stop purchasing “things” because the energy to produce those these are so great?
What does the US have to worry about? not trade deficits. we’re the most powerful nation in the world. it’s not like the other nations are gonna stop being our friends unless we pay them back. i say bring on the imports, bring on the some more negative net exports. it’s the trade deficit that has allowed many americans to live the way they want to. the deficit allows domestic living standards to exceed domestic output, meaning we are getting much more than we are working for… a record 725billion dollars more.