RandomGuy
10-02-2005, 01:53 PM
Slight improvement in U.S. current account deficit masks declining net payments on investments
The Bureau of Economic Analysis (BEA) announced on September 16 that the current account deficit (the broadest measure of the U.S. balance of trade in goods, services, and payments to the rest of the world) declined to $782.6 billion, at an annual rate, in the second quarter of 2005, a decrease of 1.3% over the first quarter of 2005. The deficit declined to 6.3% of GDP from 6.5% in the first quarter. The most striking feature in the BEA report was the rapid growth in government payments to foreign holders of U.S. treasury securities. Government interest payments on U.S. foreign debt are certain to grow in the future as interest rates rise and the amount of debt held abroad increases. Although the trade deficit appeared to stabilize in the second quarter, it is also likely to increase in the near term due to the soaring costs of oil imports.
The current account deficit shrank in the second quarter of 2005 because of a sharp $17.5 billion reduction in U.S. foreign aid payments, following a spike in aid payments in the first quarter. These payments are unlikely to shrink again in the near term. The deficit on goods and services increased $1.1 billion and net income from investments and wages fell $4.4 billion, resulting in the second quarterly income deficit on record, which reflected, in part, a deficit in employee compensation. Though net investment income still had a $4 billion surplus in the second quarter, as shown in Figure A, it has declined sharply from a surplus of $52 billion in 2003. This decline was driven by a $39 billion increase in U.S. government payments to foreign holders of government securities, and by a $6 billion decline in net income on foreign direct investment. The need to finance rapidly growing U.S. current account deficits increased the net U.S. international investment deficit to $2.5 trillion in 2004. Overall, payments to foreign investors have increased faster than payments to U.S. investors since 2003 as shown below.
http://www.epi.org/images/capict20050923figa.gif
The BEA also reported that foreign official (government) purchases of U.S. assets increased more than three-fold to $330 billion at an annual rate in the second quarter. A bloc of Asian central banks, lead by China, made 68% of all official purchases of U.S. assets in this period. These governments are willing to absorb the risks of financial losses from an ultimate decline in the dollar in order to make their exports more competitive against U.S. products. If their central banks had not intervened in foreign exchange markets, then the dollar would have fallen much more than it has since 2002. In fact, the real value of the dollar gained 1% between the fourth quarter of 2004 and the second quarter of 2005. The dollar would have declined, and much more rapidly, especially against Asian currencies, if there had been no foreign government intervention in currency markets. If the dollar did decline fully, the prospects for shrinking the U.S. current account deficit would be greatly improved.
Source article (http://www.epi.org/content.cfm/webfeat_econindicators_capict_20050923)
I have abbreviated this article slightly, the original one is in the above link.--RG
What all of this happy crap means is that the deficits we are creating mean ever-larger debt payments on private, corporate, and especially GOVERNMENTAL overall debts, and this money is going right out of the economy. This administrations voo-doo economics will ruin us in the long term.
The Bureau of Economic Analysis (BEA) announced on September 16 that the current account deficit (the broadest measure of the U.S. balance of trade in goods, services, and payments to the rest of the world) declined to $782.6 billion, at an annual rate, in the second quarter of 2005, a decrease of 1.3% over the first quarter of 2005. The deficit declined to 6.3% of GDP from 6.5% in the first quarter. The most striking feature in the BEA report was the rapid growth in government payments to foreign holders of U.S. treasury securities. Government interest payments on U.S. foreign debt are certain to grow in the future as interest rates rise and the amount of debt held abroad increases. Although the trade deficit appeared to stabilize in the second quarter, it is also likely to increase in the near term due to the soaring costs of oil imports.
The current account deficit shrank in the second quarter of 2005 because of a sharp $17.5 billion reduction in U.S. foreign aid payments, following a spike in aid payments in the first quarter. These payments are unlikely to shrink again in the near term. The deficit on goods and services increased $1.1 billion and net income from investments and wages fell $4.4 billion, resulting in the second quarterly income deficit on record, which reflected, in part, a deficit in employee compensation. Though net investment income still had a $4 billion surplus in the second quarter, as shown in Figure A, it has declined sharply from a surplus of $52 billion in 2003. This decline was driven by a $39 billion increase in U.S. government payments to foreign holders of government securities, and by a $6 billion decline in net income on foreign direct investment. The need to finance rapidly growing U.S. current account deficits increased the net U.S. international investment deficit to $2.5 trillion in 2004. Overall, payments to foreign investors have increased faster than payments to U.S. investors since 2003 as shown below.
http://www.epi.org/images/capict20050923figa.gif
The BEA also reported that foreign official (government) purchases of U.S. assets increased more than three-fold to $330 billion at an annual rate in the second quarter. A bloc of Asian central banks, lead by China, made 68% of all official purchases of U.S. assets in this period. These governments are willing to absorb the risks of financial losses from an ultimate decline in the dollar in order to make their exports more competitive against U.S. products. If their central banks had not intervened in foreign exchange markets, then the dollar would have fallen much more than it has since 2002. In fact, the real value of the dollar gained 1% between the fourth quarter of 2004 and the second quarter of 2005. The dollar would have declined, and much more rapidly, especially against Asian currencies, if there had been no foreign government intervention in currency markets. If the dollar did decline fully, the prospects for shrinking the U.S. current account deficit would be greatly improved.
Source article (http://www.epi.org/content.cfm/webfeat_econindicators_capict_20050923)
I have abbreviated this article slightly, the original one is in the above link.--RG
What all of this happy crap means is that the deficits we are creating mean ever-larger debt payments on private, corporate, and especially GOVERNMENTAL overall debts, and this money is going right out of the economy. This administrations voo-doo economics will ruin us in the long term.