Croker Sack

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." — Henry Louis Mencken (1880-1956)

Wednesday, March 15, 2006

The piper must be paid

As I was saying, there can come a time when foreigners have little use for more greenbacks.

Here's a statement of the conclusion reached in a study report from a fellow who is thought to know what he's talking about:

The amount of foreign capital inflows required to sustain an American economy in which both the government and individuals eschew savings and spend beyond their means -- and imports far exceed exports --has soared to record highs. But even if the foreign appetite for U.S. Treasury securities and other U.S. assets continues to grow, a day of reckoning for what economists call our "current account deficit" is likely to arrive soon. And the price will be paid in a currency drop that will significantly reduce domestic economic growth.

So far, only the lowly Washington Times has given this idea any play:

U.S. trade deficit rises sharply
By Patrice Hill
March 15, 2006

The U.S. trade and investment deficit with the rest of the world ballooned to $805 billion last year, for the first time reflecting a spiral of rapidly growing debt service costs caused by rising interest rates.

The surge in the external deficit, which is larger than any other nation's at 6.4 percent of economic output, comes as the United States is spurning foreign takeovers of ports and oil companies and raising doubts about its ability to keep financing such unprecedented levels of debt, analysts say.

"It is certainly something to worry about," said Martin Feldstein, an economics professor at Harvard University and president of the National Bureau of Economic Research. "Continuing to attract funds when the current-account deficit is that large and continuing to rise is bound to become a serious problem."
The deficit amounts to about $2.2 billion a day in funds from abroad -- about the equivalent of one DP World ports deal every three days.

These funds, culled from every nation from Asia to the Middle East and Canada, mostly are invested in U.S. stocks and bonds, including the mortgage-backed securities that finance purchases of American homes.
A study released by the National Bureau of Economic Research this month concluded that the U.S. faces "a day of reckoning" soon from the pileup of debt, which will be marked by a drop in both economic growth and the value of the dollar and financial markets.

Economist Sebastian Edwards, author of the study, said that because of the sheer enormousness of U.S. debts, a sharp economic decline is the most likely scenario, with gross domestic product falling by as much as 5 percent in what would be a deep recession.

At some point, we need to begin paying our own way; and in the meantime we need to allow the people who accept our greenbacks to buy us out -- lock, stock and barrel.


Post a Comment

<< Home