Federal Trade Deficit Declines
Posted by Moonage on 11 May 2005 | Tagged as: Fed Policy
That’s the headline. Now, more than anything else, The U.S. trade deficit narrowed unexpectedly to $55.0 billion in March in the largest drop in over three years, as exports hit a record and imports from China declined, a government report showed on Wednesday.
That’s the headline. Now, more than anything else, trade deficits bug me. A lot of people say deficits are good, as they stimulate jobs and such here. However, I don’t buy it as that simple. If the product had been bought here, that money would still be circulating in our economy as opposed to another economy. The headline is a step in the right direction, but it’s nowhere near enough to satisfy me.
During the Clinton years, the trade deficit exploded. In January 1993, it was 3.8 billion. By December 2000 it was 34.2 billion. Basically anyone the questioned the exploding deficit was shouted down with "It’s the economy, stupid!". I couldn’t help but worry. Mainly because of the fact that the GDP was growing nicely:
But, as the two graphs show, the deficit was growing much more rapidly than the GDP. We were stimulating our economy, but creating jobs in China. We were taking money out of our circulation. That’s never good.
Low and behold, the tech boon of the 90’s finally crashed and we were left with a somewhat normal economy to deal with. However, as the first graph shows, the deficit still continued to soar, while this happened on the GDP side. Instead of fueling the boon with cheap foreign labor and cheap parts, people were supposedly now looking for cheaper brands and such because of the tightened economy.
While hardly no one was complaining about the exploding FTD except me ( I know there were others, but we were certainly in the minority ), people WERE complaining about the shrinking US dollar. I figured once things got cheap enough here, that pesky FTD would correct itself. Well, this is what has happened since the dollar has been stalling word wide:
The FTD has leveled off, going up some, and going down some, but never to any great degree. Until March of this year. The almost 10% drop is the first major drop in over five years. It’s nowhere near enough for me, but it’s a heck of a good start. As the Chinese money keeps getting more expensive due to their growing economy, the EU maxes out it’s value, the US dollar will continue to decline making our stuff cheaper over there, and just as if not moreso importantly, making their stuff more expensive over here. I’m fine with that. Let Greenspan worry about keeping the economy stable, but don’t do one damn thing to make the dollar more valuable, yet.
One thing I did find curious in my research was this little oddity. Examining declining and increasing months during the duration of the Clinton term vs the current Bush term, you get this chart:
At almost the identical rates, both Bush and Clinton had approximately 58% of their months experience changes in the FTD that were increasing. The only real difference was not how often they occurred, but the size. Clinton had some wild swings, Bush’s have all been pretty small. In this case, size does matter. I wouldn’t mind a couple more of Clintonesque size decreases. The more money we keep at home, the happier I am.
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