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-- U.S. Trade Deficit Hit All-Time High in 2005

U.S. Trade Deficit Hit All-Time High in 2005

This doesn't look good.

quote:

February 10, 2006 U.S. Trade Deficit Hit All-Time High in 2005 By VIKAS BAJAJ The United States trade deficit jumped nearly 18 percent in 2005, the government reported today, hitting its fourth consecutive record as consumer demand for imports increased and energy prices soared. The $725.8 billion gap, which is almost exactly twice the deficit in 2001, was driven by a 12 percent jump in imports and a more muted 10 percent increase in exports, the Commerce Department reported. The nation last had a trade surplus, of $12.4 billion, in 1975. As a percent of the gross domestic product, the trade gap increased to 5.8 percent from 5.3 percent in 2004 and 4.5 percent in 2003. With the American economy continuing to grow faster than many of its export markets and energy prices staying at elevated levels, economists expect little improvement, and perhaps even a slight worsening, in the national trade balance this year. "The pace of that widening will be moderating to some extent," Dean Maki, chief United States economist at Barclays Capital, said noting that exports to Europe, Japan and other countries are growing. But "you need a dramatic slowdown in domestic U.S. demand to bring down the U.S. trade deficit and we think that is unlikely." That means the country will have to continue to rely on the strong flow of foreign money, particularly from central banks in Asia, into American financial markets for some time to come. China, Japan and other foreign governments are some of the biggest holders of United States Treasury bonds. Their purchases help finance the federal budget deficit and allow American consumers to buy cheap imports, many of them from Asia. Many economists believe that situation is unsustainable in the long run and the United States will eventually face a harsh correction that would depress consumer spending, increase the cost of borrowing and have other painful results. "There is certainly going to be inflows, the question is at what price?" said James O'Sullivan, an economist at UBS. "As time goes on, it will become a little more difficult to attract foreign funds. That's another way of saying the dollar will fall." Perhaps one of the most important factors in the rising deficit is the import of oil and other energy sources. Trade in petroleum products accounted for 29 percent of the total deficit, up from 25 percent in 2004. Imports for petroleum goods climbed 39 percent, to $251.6 billion, after rising by 39 percent in 2004. Excluding oil and other petroleum products, the trade deficit would have grown 10 percent, to $537 billion. Though oil and other energy prices fell late last year, which helped lower petroleum imports in December, they have risen sharply early this year because of concerns about Iran's nuclear program. In December, the nation saw a 1.5 percent increase in the deficit, to $65.7 billion, as imports of computers, cars and airplanes rose and exports of planes, which had risen sharply in November, dropped. The trade deficit in petroleum products narrowed by about $1.2 billion, but nonpetroleum imports increased by $2.3 billion, to $47.3 billion. "We can expect to see worse numbers to come," said Ashraf Laidi, chief currency analyst for MG Financial Group in New York. "The simple reason is when there is a rise in oil prices that increase in oil price for a particular month does not tend to spill over into the trade deficit until the next month." The nation set another record last year, this one in its politically sensitive trade deficit with China. That nation had the largest trade deficit with the United States of any country, at $201.6 billion for the year, up 24.5 percent from 2004. In December, the country's deficit with China narrowed 11.9 percent, to $16.3 billion. Lawmakers in Washington have seized on the growing trade imbalance in China to call on the Bush administration to take a harder line with the country on its currency and other trade practices. In July, the Chinese government adjusted the value of the yuan up by about 2 percent and allowed its currency to float in a narrow band. Since then it has risen by an additional 0.7 percent. One dollar buys about 8.0505 yuan today. The United States' second biggest deficit was with Japan, at $82.7 billion, up 9.4 percent, followed by Canada, a big supplier of oil and natural gas, at $76.5 billion, up 15.1 percent. The deficit with members of the Organization of Petroleum Exporting Countries increased by 29 percent, to $92.7 billion.

Source: NY Times

Do you know what this means?

quote:

Originally posted by Shakka Do you know what this means?

Huh?

quote:

Originally posted by shaolin_Z Huh?

This means that economics works!

Why are you complaining? I dont notice a change in the economy, why all of the suddent this is bad? Or you just want to find excuses that "OMFG BUSH IS A LIER"!

quote:

Originally posted by Shakka This means that economics works!

Oh yes it really works

In all seriousness shakka what's your assessment. Be honest.

Mine: The housing boom will stabilize ... it won't pop, burst, or anything. I think it will be a gradual adjustment that guides the markets gently. I think US domestic demand will decline but it won't affect the world economy to such a degree because Japan and Germany are replacing the US to a certain degree. The US will be forced to account for it's deficits in a much greater fashion than ever before but it wont be lifethreatwning. .

*waits for less demand in america*

quote:

Originally posted by occrider Oh yes it really works In all seriousness shakka what's your assessment. Be honest. Mine: The housing boom will stabilize ... it won't pop, burst, or anything. I think it will be a gradual adjustment that guides the markets gently. I think US domestic demand will decline but it won't affect the world economy to such a degree because Japan and Germany are replacing the US to a certain degree. The US will be forced to account for it's deficits in a much greater fashion than ever before but it wont be lifethreatwning. .

Heh. It's fun to theorize. So many hypotheticals and variables. I believe that the housing bubble fizzle will be, at least initially, most evident in areas that have simply had explosive appreciation in asset prices more as a result of loose, easy money rather than some wonderful event that has made a shack in L.A. suddenly worth $1M. It's not like America is safer now. But then again, California is a strange place. There are plenty of other areas across the country, e.g.Florida, Virginia, Arizona, Las Vegas, etc. that have had similar experiences. And no doubt, the easy money at record low interest rates, and ever more exotic mortgages (Option ARMs, No Doc/Low Doc loans). With a good portion of those adjustable rate mortgages getting ready to reset, interest rates are much higher now, somebody is getting ready to feel a bigger pinch. Throw on much higher energy costs, new credit card payment minimums which will essentially double the minimum-payment amount--a lot of folks on the sub-prime section of the credit scoreboard are really gonna be in a pinch. Not to mention, it's a lot harder for them to file Chapter 7 anymore.

But the real root of the problem is that the U.S. consumer is so tapped out. I've thought so for several years now, but I really believe we're finally at an inflection point. At some level there are going to be serious problems. The U.S. has a negative savings rate. What people can't afford to buy, the buy on credit. When they run out of credit, the use up their equity. Mortgage Equity Withdrawals have peaked--last year they were around $800M annualized in September.

Throw into all of this a now fully inverted yield curve and the milestone event that is Greenspan stepping down and Bernanke stepping in. Will Bernanke be hawkish and satisfy those that defy him to raise rates in the face of an inverted yield curve? To prove his might? Will he drop money from helicopters and flood the market?

Man, I don't know, but I'm pretty sure the consumer is about out of gas. In any event, the consumer can't afford to grow at the rate he's been going at, let alone sustain the current level of growth when the house they've been using as an ATM runs dry? Last qtr GDP growth was only 1.1%. How much of that can you blame on Katrina?

Things just feel a little ominous to me right now. There are real risks out there that I'm concerned about. But then again, I work for a shop that can be pretty bearish on the economy. Then we try to position ourselves accordingly.

quote:

Originally posted by Shakka Heh. It's fun to theorize. So many hypotheticals and variables. I believe that the housing bubble fizzle will be, at least initially, most evident in areas that have simply had explosive appreciation in asset prices more as a result of loose, easy money rather than some wonderful event that has made a shack in L.A. suddenly worth $1M. It's not like America is safer now. But then again, California is a strange place. There are plenty of other areas across the country, e.g.Florida, Virginia, Arizona, Las Vegas, etc. that have had similar experiences. And no doubt, the easy money at record low interest rates, and ever more exotic mortgages (Option ARMs, No Doc/Low Doc loans). With a good portion of those adjustable rate mortgages getting ready to reset, interest rates are much higher now, somebody is getting ready to feel a bigger pinch. Throw on much higher energy costs, new credit card payment minimums which will essentially double the minimum-payment amount--a lot of folks on the sub-prime section of the credit scoreboard are really gonna be in a pinch. Not to mention, it's a lot harder for them to file Chapter 7 anymore. But the real root of the problem is that the U.S. consumer is so tapped out. I've thought so for several years now, but I really believe we're finally at an inflection point. At some level there are going to be serious problems. The U.S. has a negative savings rate. What people can't afford to buy, the buy on credit. When they run out of credit, the use up their equity. Mortgage Equity Withdrawals have peaked--last year they were around $800M annualized in September. Throw into all of this a now fully inverted yield curve and the milestone event that is Greenspan stepping down and Bernanke stepping in. Will Bernanke be hawkish and satisfy those that defy him to raise rates in the face of an inverted yield curve? To prove his might? Will he drop money from helicopters and flood the market? Man, I don't know, but I'm pretty sure the consumer is about out of gas. In any event, the consumer can't afford to grow at the rate he's been going at, let alone sustain the current level of growth when the house they've been using as an ATM runs dry? Last qtr GDP growth was only 1.1%. How much of that can you blame on Katrina? Things just feel a little ominous to me right now. There are real risks out there that I'm concerned about. But then again, I work for a shop that can be pretty bearish on the economy. Then we try to position ourselves accordingly.

Pretty good assessment, and I tend to agree with this view as well, unfortunately. Throw in some stagnant wages that can't keep up with inflation, and we've got some real muck (though from what I saw, the wages did increase last month pretty nicely).

So now what? It's easy to be a whiny liberal and complain about what's wrong with things , what is a possible solution?

Or actually, what's a VIABLE and REALISTIC solution in your mind?

quote:

Originally posted by MisterOpus1 Pretty good assessment, and I tend to agree with this view as well, unfortunately. Throw in some stagnant wages that can't keep up with inflation, and we've got some real muck (though from what I saw, the wages did increase last month pretty nicely). So now what? It's easy to be a whiny liberal and complain about what's wrong with things , what is a possible solution? Or actually, what's a VIABLE and REALISTIC solution in your mind?

Get defensive. Go short consumer discretinary and subprime focused companies. And for God's sake, get rid of your greenbacks! Duck and cover.

Oh, you mean socially? heh. Good question. I'm just a critic--same as you. Not socialized healthcare. Not more taxes on an already overburdoned consumer. And not for even more progressive tax code against those who happen to be more prolific income generators. Trim the fat. The dollar very well could take another deeper dive before long.

Really, the American housing boom isn't that impressing at all. An apartment on Manhattan is still cheaper than one in Stockholm which is ridiculous! Then compare to like London or somewhere in England and you will see that the American housing boom isnt all that bad! You are just used to really low prices on housing!

quote:

Originally posted by St_Andrew Really, the American housing boom isn't that impressing at all. An apartment on Manhattan is still cheaper than one in Stockholm which is ridiculous! Then compare to like London or somewhere in England and you will see that the American housing boom isnt all that bad! You are just used to really low prices on housing!

I saw some prices to sign 100 year leases on some apartments that were pretty ludicrous indeed. I didn't know how people could afford them. I don't know how much people make in London, or how their housing system really works, as well as their tax code, but I will say that they are currently experiencing the downside of a housing boom. It's all relative. Never been to Stockholm. London is huge.






Likewise, some areas in American have simply grown to much too quickly. Even if it's only a correction, the economy will feel it and people will feel it. When trends undergo corrections, they typically overcorrect before adjusting back to normalized rates. I'm just sayin' better to be prepared than to be caught blindsided when there are so many reasons to be aware.

An 100 year lease ?? Come one !!! That's pricing insanity !!!

Hey, the topic is the US trade deficit. It's pretty dangerous for your economy to have such a deficit, because it makes your companies less competitive in your home market, it starts taking up jobs that will never be recovered, and when it is too late the only way of getting out of that deficit is currency devaluation.

Which is clearly not an option for the US, because if they do devaluate the US dollar it will hurt the US treasury bonds and the other hughe problem of the US righ now: The foreing debt.

quote:

Originally posted by chandler An 100 year lease ?? Come one !!! That's pricing insanity !!! Hey, the topic is the US trade deficit. It's pretty dangerous for your economy to have such a deficit, because it makes your companies less competitive in your home market, it starts taking up jobs that will never be recovered, and when it is too late the only way of getting out of that deficit is currency devaluation. Which is clearly not an option for the US, because if they do devaluate the US dollar it will hurt the US treasury bonds and the other hughe problem of the US righ now: The foreing debt.

In all honesty, it seems inevitable, no matter how we may choose to try to fight it. Furthermore, foreign holdings of U.S. currency are so high that it would be a global pain, which is why everyone has the dilemma of supporting the deficit or contributing to global dollar decline.

quote:

Originally posted by Shakka Heh. It's fun to theorize. So many hypotheticals and variables. I believe that the housing bubble fizzle will be, at least initially, most evident in areas that have simply had explosive appreciation in asset prices more as a result of loose, easy money rather than some wonderful event that has made a shack in L.A. suddenly worth $1M. It's not like America is safer now. But then again, California is a strange place. There are plenty of other areas across the country, e.g.Florida, Virginia, Arizona, Las Vegas, etc. that have had similar experiences. And no doubt, the easy money at record low interest rates, and ever more exotic mortgages (Option ARMs, No Doc/Low Doc loans). With a good portion of those adjustable rate mortgages getting ready to reset, interest rates are much higher now, somebody is getting ready to feel a bigger pinch. Throw on much higher energy costs, new credit card payment minimums which will essentially double the minimum-payment amount--a lot of folks on the sub-prime section of the credit scoreboard are really gonna be in a pinch. Not to mention, it's a lot harder for them to file Chapter 7 anymore. But the real root of the problem is that the U.S. consumer is so tapped out. I've thought so for several years now, but I really believe we're finally at an inflection point. At some level there are going to be serious problems. The U.S. has a negative savings rate. What people can't afford to buy, the buy on credit. When they run out of credit, the use up their equity. Mortgage Equity Withdrawals have peaked--last year they were around $800M annualized in September. Throw into all of this a now fully inverted yield curve and the milestone event that is Greenspan stepping down and Bernanke stepping in. Will Bernanke be hawkish and satisfy those that defy him to raise rates in the face of an inverted yield curve? To prove his might? Will he drop money from helicopters and flood the market? Man, I don't know, but I'm pretty sure the consumer is about out of gas. In any event, the consumer can't afford to grow at the rate he's been going at, let alone sustain the current level of growth when the house they've been using as an ATM runs dry? Last qtr GDP growth was only 1.1%. How much of that can you blame on Katrina? Things just feel a little ominous to me right now. There are real risks out there that I'm concerned about. But then again, I work for a shop that can be pretty bearish on the economy. Then we try to position ourselves accordingly.

Hehe sorry for the late reply, I forgot that I asked you a question in this thread. Yea I'm pretty bearish on the economy for 2006 as well. I think the reason for that is that, as you said, consumers are pretty much stretched to the limit. The savings rate is simply abysmal in the US and to me it's simply unsustainable. I think the only reason why consumers were able to prop up the economy as much as they have was because of the additional equity they were able to utilize because of the housing boom and thus have spent beyond their means with their credit (you're definitely spot on with that imo). I forsee some inflationary pressures that I anticipated in 2005 but have yet to see. The reason for this is because there's was still strong demand for the dollar, despite irresponsible deficits, because there were no attractive alternatives in any other currency market. But I think we're starting to see some changes. For one, I think Germany is on the mend. THe start of 2006 seems to indicate that there will be some significant economic reform and a big upswing in consumer confidence. This could be tempered with the remote possibility that Italy will withdraw from the Euro, but I think that that is extremely unlikely this year. The other big change is that Japan appears to be on the mend. Despite what's happened with livedoor, I think they're finally escaping their slump considering the performance of all their economic indicators. I just have a bad feeling about the US economy in 2006. I could be completely wrong, as most economists are, but I've adjusted my 401k allocation by giving a Euro/Pacific fund a larger share of my savings. Please, this is not financial advice to anyone, this is my own personal opinion which has been wrong many times in the past.

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