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Dollar sinks further as US trade deficit swells to 4.5% of GDP
By Rupert Cornwell in Washington
14 February 2004
The US trade deficit soared to a record $489bn (260bn) last year, driving
the dollar lower amid fears the currency will have to decline even further
if the huge imbalance is to be narrowed. According to the Commerce
Department, the trade gap for the month of December 2003 alone far exceeded
economists' expectations to reach $42.5bn.
The total deficit for the year was 17 per cent higher than in 2002,
suggesting the 13 per cent fall in the dollar over the past two years has
had relatively little impact.
The news pushed the dollar to an 11-year low of $1.8834 against the pound by
late session, and to within a cent of its all-time low against the euro.
The declines raise the risk of accelerated inflation as the dollar price of
imports to the US continues to rise. Indeed, if new figures yesterday are
any guide, this may already be happening. US import prices, the Labor
Department reported, climbed 1.3 per cent in January, the biggest single
month's rise since February 2003.
At the same time, there are signs that momentum may be starting to ebb from
the economy. Though the latest Federal Reserve projections are for GDP
expansion of up to 5 per cent in 2004, the closely watched consumer
confidence index published by the University of Michigan dipped by more than
10 points in February.
If that pattern is reflected elsewhere, this new caution by consumers, whose
spending accounts for almost three-quarters of the total economy, could bode
ill for growth, and thus job creation - at the very moment President George
Bush enters a re-election campaign, in which the loss of jobs to cheap
overseas producers in Asia and Latin America will be a major issue.
The prime contributor to the record 2003 trade deficit - equivalent to
almost 4.5 per cent of GDP - was a $124bn deficit with China, followed by
one of $94.3bn with the European Union. In December alone, imports from
China declined slightly to 13.2bn, exactly a tenth of total imports of
$132bn.
In recent months, US officials have attempted to stabilise currency markets,
by leaning on China and Japan to allow their currencies to appreciate, and
by agreeing at the G7 Finance Ministers meeting in Florida last weekend that
the dollar's decline had gone far enough.
But on both fronts the efforts failed. If inflation begins to rise - or
worse still, foreign investors grow wary of purchasing US securities to
finance the deficit - the Fed may be forced to start raising short-term
interest rates from their current 40-year lows.
Either development would be very unwelcome in an election year for the Bush
administration, which is already under fire for the runaway federal deficit,
put at $521bn for fiscal 2004.
In testimony to the House Financial Services committee this week, the Fed's
chairman Alan Greenspan seemed unperturbed by the decline of the dollar,
arguing that foreign companies had so far been able to absorb the impact,
and that in the longer run it would help reduce the US trade deficit.
But he also warned that countries such as China and Japan, major investors
in US securities, could become more reluctant to finance the deficit. He
also spoke of a possible upward jump in oil prices.
Analysts, moreover, warned that the deficit could lower growth for the final
quarter of 2003, which preliminary estimates put at 4 per cent. "It's
probably going to knock 0.4 per cent off the revised figure," David Sloan,
an economist at 4Cast in New York, said.
Also in News
Dollar sinks further as US trade deficit swells to 4.5% of GDP
--
"We should not march into Baghdad. To occupy Iraq would
instantly shatter our coalition, turning the whole Arab
world against us and make a broken tyrant into a latter-
day Arab hero. Assigning young soldiers to a fruitless
hunt for a securely entrenched dictator and condemning
them to fight in what would be an unwinable urban guerilla
war, it could only plunge that part of the world into ever
greater instability."
-George H. W. Bush in his 1998
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- Vox Populi wrote...
Dollar sinks further as US trade deficit swells to 4.5% of GDP
By Rupert Cornwell in Washington
14 February 2004
The US trade deficit soared to a record $489bn (260bn) last year, driving
the dollar lower amid fears the currency will have to decline even further
if the huge imbalance is to be narrowed. According to the Commerce
Department, the trade gap for the month of December 2003 alone far exceeded
economists' expectations to reach $42.5bn.
[snip]
Probably the most important post on my newsreader & not a single
response!
If people in other countries think this kind of economic lunacy in the
USA won't affect them they got another think coming. Who wants to see a
global economic meltdown? Apparently Bush and his handlers do.
Incredible that there are still imbeciles on these newsgroups calling
this "supply side economics".
_______________________________________________________________________
eschild@lycos.com (Eric)
Dis-moi o je suis
Dis-moi qui je suis
Hey! Toi viens ici
Je te pose une question . . .
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Eric wrote:
- Vox Populi wrote...
[snip]
Probably the most important post on my newsreader & not a single
response!
I concur with you wholeheartedly -- especially, having experienced
the George W. Bush Metric Dollar at first hand. Yet, that begs the
question of how we *can* respond. You're *not* going to get a lot of
argument as to how Bush has @$#*ed up our economy.
If people in other countries think this kind of economic lunacy in the
USA won't affect them they got another think coming. Who wants to see a
global economic meltdown? Apparently Bush and his handlers do.
Incredible that there are still imbeciles on these newsgroups calling
this "supply side economics".
And more to the point, they even have the temerity to call themselves
Republicans....
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- Vox Populi wrote...
[snip]
Probably the most important post on my newsreader & not a single
response!
Keep in mind that the Senior Newsgroup Economists include John Corman - who
is still waiting for the BC foresty upturn that he predicted would be
triggered by a BC Liberal election victory in 2001 (he claimed the decline
of Asian markets and the US Lumber Tariff were "socialist red herrings") -
and John Lambourn, who doesn't understand the concept of percentages.
If people in other countries think this kind of economic lunacy in the
USA won't affect them they got another think coming. Who wants to see a
global economic meltdown? Apparently Bush and his handlers do.
Incredible that there are still imbeciles on these newsgroups calling
this "supply side economics".
_______________________________________________________________________
eschild@lycos.com (Eric)
Dis-moi o je suis
Dis-moi qui je suis
Hey! Toi viens ici
Je te pose une question . . .
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