I even don't care who wins or loses as long as they address the long-term (10-15 years) economic problems of this country. No one did. I even didn't vote.don knot said:Nice thread, In your quest for an honest answer to the economic problems of America you have shown your true partisanship. Don't be ashamed to be a loser!
Cam, in the immortal words of Morpheus (Matrix, not our beloved Pembroker), Welcome to the world of the Real.This election has made me realize my right wing views on abortion, the 2nd amendment, international trade, and militarism have helped cause me to overlook the corruptive and corrosive effects of vast personal wealth on our country and government.
I agree with you. However, it is in doubt whether we can pay our debt or not. As I said, our debt is inching to 80% of our GDP. With HUGE problem with social security in 10-15 years, where do we get more money to pay? In private sector, no one would lend you money if your pure debt to income ratio is 80%."It doesn’t matter if you want to view our debts as credit card debts or mortgage, as long as you can pay it, you are fine. If you cannot, whether your house is being foreclosed, or our credit cards are being taken away, you are in trouble. "
The problem with your theory is that yes we got a bargain, but our economy don't grow as fast because what constitue trade deficit is they don't buy enough of our products even with drastically depreciated dollar. With huge trade surplus China and Japan have over US, they don't buy much of our output, they use that money they got from US to finance (lend) US debt and deficit. Someday, they will want those money back."but if someone wants to sell me something cheaper than market price, I’ll say I am getting a bargain. The added benefit is that these same sellers have to turn around and buy our paper, otherwise their currencies will appreciate against the Dollar which is what they don’t want."
It is very simple. why they buy US bond? It is the belief that US dollar is the most durable currency in the world - it has been. Plus to be able to manipulate exchange rate to their advantage for export to create jobs in their own countries. Both China and Japan economies are export oriented economies. China attracts most foreign investment right now. Becasue of that, sooner or later, their economy will become consumption oriented economy like US - Japan is making that transition now. At that point, they don't need to manipulate the exchange rate anymore. They will have less incentive to buy US bond and treasury bills. Then US dollar interest rate will skyrocket, will choke US economic growth. US consumers just spend money, but don't save enough to cover the loss of international investment starting now.PugArePeopleToo said:The tennis guy, I think "Someday, they will want those money back." is the million dollar speculation that nobody truly know when is someday. Look at Japan, back in 1971, the exchange rate was one dollar to 357 yens, and now the same dollar buys 105 yens. In another word, money invested in US bonds in 1971 by the Japanese realized a 70% drop in its value. Yet, they continue to buy US bonds, today their foreign reserves grow to more than $800 billion. So the question is why would they sell their goods at a discount, and then lose more money by holding on to US debts? Either they are total idiots, or they have a very mercantile trading philosophy. Either way, the old saying of "if you owe bank a million dollars, you are in trouble, if you owe bank a billion dollars, your bank is in trouble" couldn't be more applicable.
I also doubt China will be the largest economy in the world unless they can solve their (many) internal problems. Most of the people who are predicting such thing never can explain why 35% of Chinese college grads cannot find work in that booming economy.
They are different, and they are related. Trade deficit, budget deficit, and debt will affect domestic economy in the long run. The combination of twin deficits (trade and budget) is deadly in the long run combined with our entiltlement programs.mlee2 said:I see so many tangents on this board.
Are we talking about trade deficit, our budget deficit, or our domestic economy? All three are different.
Source: http://www.atimes.com/atimes/Global_Economy/FC06Dj01.htmlGlobal Economy
The good ship US Economy...and why it won't sink
By Marc Erikson
"It's the economy, stupid!", the 1992 Clinton-Gore election slogan dreamed up by James Carville, may well be the most memorable of all times. George Bush Sr didn't get it ... and no second term. Now John Kerry, the Democrats' likely US presidential candidate in 2004, is going for a repeat against Bush Jr by harping on the unemployment issue. It'll almost certainly prove a miscalculation. Below, I detail why.
The US dollar fell by 20 percent against the euro and 10 percent against the yen last year. Since George W Bush became president, the United States has lost well over 2 million manufacturing jobs. New jobs are slow in being created. The 2003 current account deficit totaled US$580 billion (5 percent of gross domestic product, or GDP); the 2004 budget deficit will be about $500 billion - the vaunted "twin deficit". The US savings rate is near zero. So has the US economy once again become the basket case it was under Jimmy Carter before Federal Reserve chairman Paul Volcker and president Ronald Reagan rescued it and restored it to renewed vigor in the 1980s?
The short answer is, not by a long shot. At an average 6 percent GDP growth rate in the second half of 2003, the US economy grew at a rate 30 (!) times the eurozone's. Without such fast US growth, which Europeans can only dream about (most likely forever) and which drew in huge exports from the eurozone and Asia, eurozone growth would have been negative, much-admired Chinese growth zero, and recently picking up Japanese growth 1.3 percent instead of the reported 2.7 percent. A few simple calculations prove the point: The eurozone's 2003 trade surplus with the US was $75 billion or 0.85 percent of GDP, more than double the eurozone's 0.4 percent GDP growth. China's trade surplus with the US was $124 billion or 10.4 percent of GDP - slightly higher than GDP growth. Japan's trade surplus with the US was $66 billion or 1.4 percent of GDP - about half of GDP growth.
Three factors, in the main, have allowed the US economy to bounce back quickly from the recession caused by the bursting of the Internet bubble and to reduce unemployment - albeit at a slower rate than hoped for by the Bush administration - from 6.2 percent in July 2003 to 5.6 percent this January. In nearly equal order of significance, they are: deep and flexible capital markets, a flexible labor market featuring the world's best-educated labor force, and a regulatory regime and tax structures highly conducive to entrepreneurial initiative.
Starting in early 2000, stock markets sharply reversed three years of irrational exuberance and harshly punished dot-coms with sky-high valuations and zero earnings as well as information-technology (IT) stocks across the board. But sound capital was preserved as it flowed into bond markets and fueled a sustained rally there. Enterprises of all kinds and sizes, not just Internet start-ups and IT suppliers, shed substantial numbers of jobs as aggregate demand contracted. But except for manufacturing workers, whose jobs went overseas for cost reasons, large numbers of laid-off workers were reabsorbed by or started their own new businesses after relatively short periods on the unemployment rolls. High labor mobility and education levels saw to that. Already in 2001, new business formation rebounded from 377,000 in the last year of the Bill Clinton administration to 504,000. In 2002, 713,000 new businesses were created. Enactment of the Bush tax cuts ("for the rich", as the Democrats charge) led to the formation of the highest number ever (some 900,000) of new businesses in 2003 - precisely the effect the architect of the tax-cut strategy, former chief economic adviser to the president Glenn Hubbard, had intended and forecast.
In early 2004, the reduction in manufacturing jobs is - at long last - coming to an end as well, as the economy is picking up steam on the back of increased capital spending. The numbers aren't marvelous; only the decline has been arrested. And indeed, US manufacturing-sector employment has been on a secular decline for decades. The Organization of Economic Cooperation and Development (OECD) forecasts that by 2020, only 2-3 percent of the US workforce will be employed in the manufacturing sector, well down from the present 8-9 percent. Jobs that have migrated to lower-labor-cost China or Mexico will not come back to Michigan, Ohio, or the Carolinas. The present respite will be temporary, though - of course - it comes just in time to improve George W Bush's re-election chances.
What makes me most confident that the US economy has entered a sustainable expansion phase is the extraordinary increase in productivity experienced in this recovery. Productivity, labor and capital are the three factors that define an economy's growth potential. Capital and labor have generally been in ample supply in the US economy at reasonable cost. But profits and reinvestment, which delimit growth, rise with productivity. The much-maligned information-technology revolution and a labor force well prepared to make the most of the new-fangled tools at its disposal have boosted productivity to levels never seen before over an extended period. Between 1995 and 2001, annual US productivity growth averaged 2.7 percent. From 2001 to date, it has jumped to an astonishing 5.6 percent.
Some might argue that such productivity growth in the main is due to the reluctance of companies to hire added labor as output grows. I'd be most surprised, however, if the opposite weren't the true "culprit": that IT-induced production efficiencies permitted companies to adopt their go-slow stance toward new hiring. Stellar productivity growth, in my view, is due to rapid technological innovation, prompted and aided by globalization-induced competition. In this ruthless game, the fastest, best-educated innovator, imbued with pronounced and creative entrepreneurial drive, wins and reaps the greatest profit. On all counts, US companies excel and enjoy the added benefit of not being hampered by an aversive regulatory regime. Small surprise then that the US economy bests the rest.
Current account deficits? Budget deficits? Low savings? One nation's current account deficit is another's capital account surplus. As things stand, Asian exporters and public and private investors are demonstrably prepared and eager to invest their surpluses where they find the best markets and best risk rewards - the United States. Capital inflows to the US well exceed, and increasingly so, the trade and current account deficits.
The budget deficit, like any debt, is more easily financed and built down in a fast-growing economy. The Congressional Budget Office (CBO) estimates that this year's deficit will come in at $477 billion. Were GDP to grow by 5 percent to $11.815 trillion in 2004, the deficit would be about 4 percent of GDP, roughly in line with the deficits of the major eurozone economies. The CBO also estimates that the deficit will be nearly cut in half in three years' time to $242 billion. With continuing moderate economic growth, the deficit will be below 2 percent of GDP by 2007 - another number Europeans can only dream about.
Last, low savings: Americans don't save much, but they invest. Fifty percent of households own stock; as of the fourth quarter of 2003, 68.6 percent of US families were homeowners. In a growing economy, such assets grow in value and usually grow a whole lot faster than money in savings accounts. It's riskier to own such assets rather than cash under the mattress, but risk-taking is precisely what's made the US economy the dynamic one it is.
It is ridiculous to use that growth rate as gauge. Anyone who knows how growth rate is calculated knows it is misleading. The reason it was 6% in 2003 is because the year before US economy wasn't growing at all. Now US economy is growing a little bit, at about 3-4% relative to 2003.At an average 6 percent GDP growth rate in the second half of 2003.
It seems very convenient for him to mention the deficit alone, but not the debt. Yes, our deficit for one year is not that big as percentage of GDP. However, our debt is big which is 70% of GDP. Even if our economy grew at 5% as he suggested - we aren't - but our debt is growing much faster than 5%.The budget deficit, like any debt, is more easily financed and built down in a fast-growing economy. The Congressional Budget Office (CBO) estimates that this year's deficit will come in at $477 billion. Were GDP to grow by 5 percent to $11.815 trillion in 2004, the deficit would be about 4 percent of GDP, roughly in line with the deficits of the major eurozone economies. The CBO also estimates that the deficit will be nearly cut in half in three years' time to $242 billion. With continuing moderate economic growth, the deficit will be below 2 percent of GDP by 2007 - another number Europeans can only dream about.
I agree with you completely. Increase tax or not cutting tax alone is not going to resolve this problem. Cut spending has to go alone with either one of them.It is interesting to note that even if we put back Bush's tax cut, there will still be a deficit. Therefore, no matter what, we need to cut spending. Since the largest budgetary expenditure was domestic (mostly middle class) entitlement, my other million dollar question is do we have the collective will to curb, not to mention cut, social program? If we want our politicians to cut the pork, then stop asking them to bring home the bacon. Since these officials were elected by us, we can blame no one but ourselves for our fiscal mess.
Unfortunately, I don't think you know anything about economics. Our trade deficits are expanding even with our devalued dollar.thejerk said:Did I hear, record exports and US trade deficit shrinking. Of course, not unexpected just under reported. Remember, oh golly gee outsourcing is evil.