There is a very good article in today's WP
http://www.washingtonpost.com/wp-dyn/articles/A4175-2004Dec16.html
that sums up the situation on the US current-account deficit.
So what? Who cares? You should. This may be the single largest threat to the american and world economies. Forget about Osama bin Laden and the islamic fundies. Forget about Korea and Iran and their nuclear weapons. If the Japanese or Chinese decide to dump their US dollars, everyone but the rich are going to be scoping out the soup kitchens.
More below the fold.
The total annualized US current-account deficit is 4x$165B=$660B. This is the US trade deficit. Now add to that the annualized US budget deficit of roughly $500B and we arrive at the staggering total of $1.16 Trillion per year that needs to be financed by someone. Some of it is financed by american lending institutions, which is fairly benign because it is essentially borrowing from ourselves, but the rest must be picked up by foreign countries, mostly Japan and China. According to the above WP article;
"Japan pared holdings of Treasury securities in October to $715.2 billion, from $720.3 billion in September, according to information collected by the Treasury Department. China, however, increased its holdings slightly to $174.6 billion in October from $174.3 billion in the previous month."
So here's the question: how long will the Japanese and Chinese be willing to buy up US debt? What would happen if they decided it is no longer in their interests to do so?
Here's what Alan Greenspan thinks:
"Federal Reserve Chairman Alan Greenspan, in a speech last month, warned that the bloated current account deficits eventually could threaten the economy by souring foreign appetite for investing in the United States.
So far, foreigners are willing to lend the United States money to finance its current account imbalances, Greenspan said. The worry is that at some point foreigners might suddenly lose interest in holding dollar-denominated investments.
That could cause them to unload investments in U.S. stocks and bonds, which would send prices of the stocks and bonds plunging and interest rates soaring. Japan, followed by China and then Britain, are the biggest holders of U.S. Treasury securities."
This is another case of the emperor wearing no clothes while his syncophant underlings are too afraid to speak up. Doesn't it strike anyone else as exceedingly peculiar that Bush cannot dredge up even one respected economist who will take the Treasury cabinet position? Could it be that not even a Heritage Foundation economic hack wants to have his name associated with Bushonomics? John Snow is a railroad executive with absolutely no experience in international or government finance, or even in formulating macroeconomic policy. Bush is still operating off that napkin on which Laffer drew his simplistic curve.
When even a partisan Fed chairman like Greenspan is barking, something is drastically wrong. Yet the bushaholics continue to whistle past the graveyard while continuing to destroy the social safety net, implement tax policies that favor inherited wealth, and increase the continuing export of american industry and jobs.
Without the economic security and stability that fosters a broad middle class, no social progress can be made. People need to get their priorities in order and concentrate on economic issues rather than divisive social issues. Social justice follows economic justice.
Americans don't need to worry about the Islamic Bomb, they need to worry about the Dollar Bomb.