BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? In January the U. S. trade gap widened to $58.3 billion. For all of 2004, the U. S. booked a record trade deficit of $617.1 billion, or 5.3 percent of gross domestic product. The trade gap with China widened by nearly $1 billion to $15.3 billion as exports plunged 20 percent. The trade gap with Canada widened to $6.2 billion, the most since June as imports grew by 4.3 percent. Those that thought a falling dollar would cure this problem can look again. The US$ index is down about 40% since 2002 yet month after month the balance of trade just gets worse as evidenced by the following chart: The typical scapegoat for this sad state of affairs is China. That viewpoint is misguided and the following chart shows why. China accounted for only 15.2 Billion of that trade gap and given what is produced in China vs what is produced in the US there is no doubt in my mind that floating the RMB will not make one bit of difference. Is manufacturing going to return to the US with wages here 30 times what wages are in China? No chance! to say: 'Outsiders don't know what exactly is happening in China. The idea that China has the key to the balance of the whole world's economy is totally wrong. The imbalances are attributable to many reasons, but not whether the yuan exchange rate is flexible or not flexible'. . There is rampant housing speculation in housing and the stock market. People have treated their houses as ATMs and used cash out refis to leverage into more real estate and more consumption. This combined with lax credit standards and out and greed on behalf of sub-prime lenders together with cheap money from the FED is what is driving this frenzy. . The problem is further compounced by Bush's proposed Social Security 'reform'. Smack in the face of horrid trade balances and US gov't budget deficits of approximately $400 billion, Bush wants to increase that deficit now to pay for a theoretical problem some 15-40 years down the road. The US treasury market is starting to revolt. If the Bush administration is not going to attempt even modest spending cuts, the bond market just might force the issue. Historically, global imbalances such as the one we are in have only been corrected via recessions that wipe out previous mal-investments of capital. The upcoming recession will be a doozy as we have 20 years of reckless excesses to pay back. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.