Friday :: Aug 13, 2004

The bad economic news continues to roll in

by soccerdad

Mind the gap

The latest data on the trade deficit came out today.

NEW YORK (CNN/Money) - The U.S. trade gap in June was so shockingly wide that many economists almost doubted the numbers on Friday.

The expectation was for the gap to be $47billion but it came in at $55.8 billion.
One certain effect of June's numbers is that the second-quarter gross domestic product (GDP) annual growth rate, the broadest measure of the economy, will be cut sharply from the 3 percent first reported -- perhaps more than offsetting the positive effects of stronger-than-expected retail sales and inventories in June

Essentially we are buying stuff on credit. So far so good, but if the people giving us the credit decide they've had enough (or get mad at us) then we have prolems. The way then to entice investors would then be to raise interst rates.

The central bankers had a study done to assess the effects of the deficits. According to the minutes of their June meeting they concluded that the deficts were quite large and could not be sustained forever. Duh! They did say that a correction was not imminent. Of course that word has lost all meaning in the last year. They said if the correction came it could be either painless or involve "wretching changes". Now I see why they get paid the big bucks.
This table comes from the article

Deeper underwater
Combined U.S. current account and budget deficits as percentage of GDP

Year Combined deficits
1994 4.6%
1995 3.7%
1996 2.9%
1997 1.8%
1998 1.5%
1999 1.8%
2000 1.8%
2001 2.6%
2002 6.1%
2003 8.4%

Sources: Bureau of Economic Analysis, Congressional Budget Office, CNN/Money

It looks to me that the recovery such as it is, has probably been funded by in large part by debt. I tried this tactic in my own life about 8 years ago. Didn't end up so good. Decided not to go bankrupcy route and got on a plan. Finally ok.

To summarize the Fed. Things are fine and will continue to be fine as long as they don't get worse.

In other news, Consumer confidence unexpectedly went down.

Michigan sentiment report weak

soccerdad :: 7:09 PM :: Comments (13) :: Digg It!