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http://afteramerica.wordpress.com/

U.S. Trade Bubble Continues to Collapse
Goods imports are down 33% over the past year, but the U.S. trade deficit, a key part of the global financial crisis, needs to narrow further!

The trade report released Apr. 9 shows that the trade bubble continues to collapse—and that’s good news.

The trade deficit shrunk to $26 billion in February, or an annual rate of $313 billion, down from $743 billion a year ago. Goods imports alone are down 33% over the past year. Leaving out oil, the imports of nonpetroleum goods are down by 26% over the past year.

This shouldn’t be a surprise to readers of my BusinessWeek blog, Economics Unbound. Global trade is following the same steep downward path as home prices and borrowing, after having followed the same upward path.

And why not? All three are manifestations of the global credit bubble. Cheap credit and the ignorance of risk helped fuel excessive trade. It made perfect sense to locate factories overseas if it cost nothing to build them, if you didn’t worry about the cost of financing the goods in shipment, and if you ignored the risks of having a 10,000 mile-long supply chain running through six countries.

What’s more, the huge trade deficit was itself an essential part of the global financial crisis. For one, it reflected massive borrowing by U.S. households to buy imported goods, with money they did not have. Second, it reflected massive lending by foreigners in the U.S., which eventually morphed into subprime mortgages and other risky ets.
Further Fall Can Help in Financial System Fix

But as long as the U.S. is running a big trade deficit, the wound is still bleeding. The non-oil merchandise trade deficit is still at $22 billion a month, or $267 billion a year. It needs to fall further.

A deeper fall in imports and the trade deficit will have several salutary effects. First, it will mean that the U.S. has to borrow less from overseas. Second, it will make it easier to fix the financial system, since banks and other financial institutions will not be funneling so much foreign money into the U.S. economy. Third, and perhaps most important, it will become easier to see just what remains of our manufacturing base. I’m reporting a new story right now about how excess globalization, fueled by the credit bubble, distorted growth statistics in the U.S. and around the world.

The downside of the fall in global trade is that it is going to be very harmful to many countries which grew too dependent on exports, including Japan and Germany. If I’m right, and the global trade boom was another manifestation of the global credit boom, a big chunk of these exports are not going to come back any time soon.

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Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

“This is a very dangerous situation for the dollar,” said Hans Redeker, currency chief at BNP Paribas.

“Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States,” he said.

The Saudi central bank said today that it would take “appropriate measures” to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

Source:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/19/bcnsaudi119.xml

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TELEGRAPH
June 19, 2008.

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

“A very nasty period is soon to be upon us – be prepared,” said Bob Janjuah, the bank’s credit strategist.

A report by the bank’s research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century.

Source:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml

The American National Debt has continued to increase an average of
$1.93 billion per day since September 28, 2007.

The national dept will exceed 10 trillion dollars within 2008.

In the 1990s $2.8 trillion of new debt was created; more than created in the nation’s entire history prior to 1990.

In the 4 years 1997-2001 total federal debt increased $438 billion,
a period when politicians bragged about a $557 billion surplus.
That’s a $1 Trillion creditability gap.
(Some might suggest Enron and others learned reporting gimmickry from government practices)

An additional $2.8 trillion of debt was added in 2002-2007.

Source:
http://home.att.net/~mwhodges/debt.htm

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http://www.chrismartenson.com

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