For 2004, the current account deficit surged to a new high of $665.9 billion from the 2003 gap of $530.7 billion, the Commerce Department said. Given my rants in the past about this issue, I doubt if any of our readers are actually surprised with this news but there is an interesting observation to make.
Historically, international trade accounts were settled with gold bullion. In other words, there was no "credit" in international trade. If you ran out of gold, you didn't do business. Since those days of good sense are gone, and in today's world of fiat currencies, it has been customary that when a country would run a trade deficit that spiraled out of control, their currency would devalue against the currency of other countries. This devaluation would raise the cost of imports making the debtor countries exports more competitively priced. This would create demand for the goods they manufactured causing their manufacturing sector to hire more people to meet the demand. This would stimulate the economy and the trade deficit would return to a more balanced state. Manufacturing was essential to the economic health of a country.
Since the year 2000, our currency has devalued against the currencies of other foreign countries by over 20% as a result of the mechanics mentioned above yet we see that our trade deficit continues to explode. Why? For two reasons, first, China and Japan won't allow our currency to devalue against theirs as they will purchase US dollars on the open market which strengthens the dollar in relation to their currencies and secondly, because we have no manufacturing sector of any significance anymore. As it was being dismantled over the last ten years we were told that it didn't matter because we were transitioning into a "service" economy.
Well, it does matter. There used to be an old expression, "As GM goes, so goes the country". Today General Motors abandoned projections of a break-even or even slightly profitable first quarter and slashed its full-year earnings outlook by more than half, citing poor North American business. Its share price tumbled to its lowest in more than a dozen years, from its old high of 94, General Motors closed just above 29 today -- a total loss of 70%. If it wasn't for their financing division - GMAC, they'd probably be out of business by now.
If one were to conspire to destroy this once great country, they could think of no better plan than to enact the fiscal and trade policies our politicians have promoted over the last decade. The terrorists don't have to do anything to destroy our country, we're managing quite nicely without their help.
Americans need to turn off the TV, stop believing what their told and start doing some critical thinking about what they see happening. These issues need to be core platform issues of candidates running for office and I'm not talking about Al Gore's lame "medicare lock box" drivel and then they need to be held accountable to ensure their implementation.
Slavery was never really abolished in this country, the criteria simply shifted from the color of one's skin to the amount of debt that they have. The master is now the banker and people in debt are enslaved to them. That reminds me, congress recently passed new legislation that prevents individuals from filing chapter 7 bankruptcy. That means your debt will be restructured in a way that you can pay it back but make no mistake, you will pay it back unless you'd rather be living in a cardboard box in an alley somewhere.
Trade deficits like we have today mean our children will inherit the responsibility to pay for them. Five percent interest on $665 billion dollars is $30 billion dollars a year. That's just the cost of the interest and that's just one obligation we're leaving to our children not to mention the cost of all of the other un-funded liabilities they will incur. We are a country with a "service" economy alright. We have become a country of people whose life's work will be to "service" the interest on a debt that can never be paid back. Personally, I'm truly ashamed to be part of a generation who's legacy was to enslave their children in poverty.
