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January 12, 2006

Out Of Balance Economy

Jerome-a-Paris has some interesting data on the imbalances afflicting the US economy.

The story starts with China. Here are partial data for China's trade balance in 2005:

 ExportsImportsTotalGrowthSurplus
Total7626601442+24%102
Europe14077217+23%63
USA15651211+25%101
Japannana184+10%na
Korea2377100na-54
ASEANna75nanana

As Jerome says:

From the numbers above, the way world trade is setting itself up becomes clearer: Western companies invest in China, using Chinese labor and Asian parts (and Australian raw materials), and sell on their home markets. [...]

Western jobs are threatened in many sectors, but Western profits are boosted. Nice if your income comes from capital, and not from labor: profits are at record levels.

This arrangement is unsustainable. It depends on American consumption, for one thing, at the same time that it depresses American wages. Hard to consume when you're broke. For now, the US is getting by on foreign debt. This graph is a real eye-opener:

For the past five years, growth in net debt has exceeded growth in GDP. We're losing ground: for every dollar of GDP growth we've had to borrow more than a dollar from overseas. We're buying our GDP growth with borrowed money.

Meanwhile, the Commerce Dept. is projecting that the US personal savings rate will likely be negative for 2005, the first negative year since the Great Depression.

None of this is sustainable, and yet we plow blithely ahead.

Posted by Jonathan at January 12, 2006 07:10 AM  del.icio.us digg NewsVine Reddit YahooMyWeb

Comments

That's a great graph. I think it says alot. It's easy to keep GDP growth when borrowing and spending so much foreigh money, but when its time to repay the debt it's another story...

If you ask me borrowings should always be factored out of GDP as on that graph when measuring economic performance.

Posted by: BenE at January 12, 2006 07:47 AM

Wait... I just realised I'm not sure what these numbers are. What is net borrowing? I though it was government deficit. Does it include personal debt?

In any case, my point was that governments should factor out their deficit out of GDP when measuring their economic performance. If the people save less that's not so much the government's fault.

Posted by: BenE at January 12, 2006 07:56 AM