Thursday, March 09, 2006

January Trade Deficit

Economists again groan as We came in with a $68.5 bn Trade Deficit in January. It does not help We also find a record $17.8 bn Trade Deficit with China. Is this real bad? It is not too bad in the Shortrun, but a disaster in the Longterm. The Steady-State of American Exports, except for seasonal Market purchases (Products which are bought in batches, sometimes dictated by the time of the Year), suggests that the World is buying what it can use of American Products. Several serious consequences result from the outlined Scenario.

The first clarity to be stated about these Conditions is that the United States is not going to produce its way out of the Trade Deficit. The rest of the World buys what it needs from the United States already, and that need is decreasing in total volume, as the World economy equalizes in technology. The American economy is based on heavy Energy consumption, and must learn to cut back on Energy-use; dictated by rising Oil prices and rising World demand for Oil. The American economy must again learn to produce the basic Products itself for domestic consumption; it puts American labor back to Work, raises total American Wages paid while constricting differential Payscales, and will eventually lower total American Energy usage. The current commitment to Free Trade must be altered, to forestall granting Trade advantage to foreign Suppliers--who need not pay American taxes and charges.

Will the American economy be able to do this?

It has to do this, because the Trade Deficit will not disappear in the Mist! The sole Question will be how much dislocation must first occur in the American economy. Delay of alteration will bring sharp devaluation of the Dollar, without any appreciable advantage in increased Trade volume. American Labor will continue to suffer from lack of Work, until American industry and business starts the switch to domestic production. We are coming to a Crossroads, which will acquire an ever-sharpening Turn. lgl

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