Tuesday, March 3, 2009

Current Account Deficit is the cause of the Global Crash, the Credit Crunch is Just a Symptom

Many experts point to the trade deficit plus interest payables, or the current account deficit as the cause for the global recession.

"The current account deficit is basically a giant loan made by investors in U.S. Treasury Notes to pay for overspending by consumers (trade deficit), as well as payments on assets overseas and some government spending."

The U.S. Current Account Deficit - - Threat or Way of Life?
Kimberly Amadeo, About.com

The above chart shows the effects of outsourcing and offshoring production in the US. The dot com boom in the late 90's didn't help real wages on the grandscale if more money was being sent to China than the dot com made as a net profit (I believe the gross is $200 billion each year, I have to look at that again).
China bought US Treasuries to keep the value of the Yuan lower than the US Dollar. The U.S. spent way too much on the war in Iraq on top of the extra spending on the stimulus package and the useless bailout. Right now the Chinese hold $700 billion in U.S. Treasuries. The trade deficit hovers around $700 billion plus interest.
See the above pie chart. The US just gave China an a large export market, at our expense. No other country sells it's market out like this. There is a reason why this happened, and that reason is not confirmed.

Now here's an interesting course of events. When Lehman Brother's collapsed, there was an electronic run on the banks worth at least $550 billion dollars. It's suspicious that this was a foreign investor but the identity has not been confirmed. Also, after teh G-10 and G-7 meetings, North Korea was somehow off the hook for having nukes. Not sure how China feels about North Korea but they were allies in the past.

Right after the subprime collapse, Henry Paulson rushed Congress to pass this bailout, at the taxpayer expense. After American bureaucracies were so kind to outsource jobs and factory production to India and China. After Bush borrowed tons of money from them to finance Halliburton, I mean the War in Iraq.

We still don't have transparancy on the bailout or the TARP. There were no auditors hired to investigate the situation with the toxic papers.

Again, I'll explain why the trade deficit is a financial massacre. If the floating net worth of the US is $60 trillion (appx-see World Factbook) and 95% of Americans own less than a liquid 1% of the total net worth (See wealth distribution or wealth inequality), then the majority of Americans are sharing less than $1 trillion between us.
The current account deficit hovered around $800 billion which leaves the 95% of Americans $200 billion (roughly-ball park figure) to split between them. Credit and derivatives was keeping the economy alive and the GDP at $13 trillion last year.

Our leadership owes us an explanation, and a good one.

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