Wednesday, March 7, 2012

Record Imports Are A "Unsustainable" Problem

Many people that comment on Japans huge government deficit and debt fail to realize that for many years Japan sported a large trade surplus. This allowed its citizens to buy bonds and allows Japan to control its destiny, this is unlike America that borrows from China and other countries to fuel its spending. The presidents spokesman was on Meet The Press a while back and said, "The time for austerity is not today" he went on "we should look at cutting the budget as a long term goal but not today." As always, it is a case of kick the can down the road.

The idea that we need to get through this rough patch before tightening the purse strings has resulted in massive deficits. A country cannot run both a fiscal deficit and trade deficit, this is unsustainable. Recent figures from the Commerce Department showed that last month the overall trade deficit rose by 3.7% to $48.8 billion, up from a $47.06 billion figure for the month earlier. Imports rose 1.3% to a record $227.56 billion, boosted by demand for foreign cars and machinery. US exports grew slightly, by 0.7%, helped by the weak dollar, with records set for petrol, services and advance technology goods.

The widening of the trade gap was bigger than had been expected. For the whole of 2011, the US trade gap rose 11.6% to $558 billion, the highest since 2008. The economically important deficit with China for the year jumped to a record high $295 billion. The latest figures, and the exchange rate that China sets for its currency against the dollar, is likely to be discussed more at coming meetings. The Senate, controlled by the Democrats, recently passed legislation to try to force China to raise the value of its currency.

But let us get to the crux of the problem, you cannot go on year after year spending more then you earn. When coupled with huge government budget deficits the trade deficits weaken the dollar and drive America in direction of bankruptcy. Let me say it again "this is unsustainable."  It is a myth that we can "export" our way out of this mess, a myth spread by politicians preaching the "no pain" method of solving a problem. The simple answer is that Americans must begin to accept reality and cut back their purchases of foreign goods.

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