It Just Doesn’t Matter

The dollar has been in decline for years. But we’re told it doesn’t matter. A weaker dollar, according to any Econ 101 textbook “makes domestic goods more competitive in overseas markets.” Interesting then, that our trade deficit stands at yet another record high, the gap wider than ever. Apparently foreigners aren’t as much in the market for Britney Spears action figures and “Oprah” magazine as we’d like to think.
The trade deficit stands at a record, well beyond the level that would quickly have triggered a panicky flight of assets from just about any other country. The November deficit hit an astounding $60 billion dollars, the biggest deficit ever, in all of history, in any nation. Ever. Period.

But we’re told it doesn’t matter. Treasury Secretary John Snow informs that the huge gaping chasm between imports and exports simply demonstrates that foreigners just plain love us and can’t wait to invest more money in the U.S. Oh, that and the fact that “The economy is growing at such a fast rate that it is generating lots of disposable income… some of which is used to buy goods from our trading partners.”

That must be all the disposable income left after the average American family banks its average $80 of savings for the year. I find it fascinating that with all the disposable income this steamy fireball of a recovery is generating, household debt stood at 115.3% of disposable personal income in the third quarter of 2004. That’s an all-time high for that figure. Funny that Americans, with a hyper-abundance of disposable income are borrowing to make ends meet.

Never mind, folks. Snow says it’s ok. It doesn’t matter. In the land of milk and honey, debt is wealth, war means peace and a dollar sailing towards hell in the proverbial hand basket is a good thing. Who says George Orwell’s dead?

The budget deficit is at a record high too. And destined to swell still further as our “swift and decisive victory” in Iraq will soon enter another year of multi-billion dollar expenditures. Private foreign investment in U.S. assets is now virtually non-existent relative to the huge inflows of foreign capital we used to see. No one in his right mind invests money in a bankrupt government.

FinancialSense