3.27.2005
How Much Longer Can the American Economy Live on Credit? (TruthOut.org--LeMonde.fr)
By Eric Leser
Le Monde
Thursday 24 March 2005
Growth of today's global economy rests in large part on American consumption. It represents a little less than 70% of the United States' Gross Domestic Product (GDP) and close to 20% of world economic activity. In counterpart to the Bush administration budgetary negligence, the United States' trade and payment deficits continue to grow - all the more quickly given that Americans devote practically all their income to spending and debt repayment.
The savings rate of American households has fallen to the unprecedentedly low level of 1.5% of available income. This system functions only because the central banks of countries that export to the United States recycle their considerable dollar surpluses. In 2004, China cleared a surplus with the United States of 162 billion dollars (125 billion Euros), with the European Union of 114 billion dollars, with Canada and Mexico of 111 billion, and of 75 billion dollars with Japan.
In the face of such imbalances, the principle adjustment variable is exchange rates. That's why the dollar has not stopped declining the last three years. It's lost close to 38% of its value against the Euro and 23% against the Yen. In theory, that should make American products more competitive. In practice, it has no effect at all. In January, the trade deficit once again attained a record 58 billion dollars. The explanation for this situation is at once the fixed linkage between key countries like China's currency and the dollar, and the incapacity of American industry to substitute for imports.
(More ... t r u t h o u t - Eric Leser | How Much Longer Can the American Economy Live on Credit?) ¶ 12:20
Le Monde
Thursday 24 March 2005
Growth of today's global economy rests in large part on American consumption. It represents a little less than 70% of the United States' Gross Domestic Product (GDP) and close to 20% of world economic activity. In counterpart to the Bush administration budgetary negligence, the United States' trade and payment deficits continue to grow - all the more quickly given that Americans devote practically all their income to spending and debt repayment.
The savings rate of American households has fallen to the unprecedentedly low level of 1.5% of available income. This system functions only because the central banks of countries that export to the United States recycle their considerable dollar surpluses. In 2004, China cleared a surplus with the United States of 162 billion dollars (125 billion Euros), with the European Union of 114 billion dollars, with Canada and Mexico of 111 billion, and of 75 billion dollars with Japan.
In the face of such imbalances, the principle adjustment variable is exchange rates. That's why the dollar has not stopped declining the last three years. It's lost close to 38% of its value against the Euro and 23% against the Yen. In theory, that should make American products more competitive. In practice, it has no effect at all. In January, the trade deficit once again attained a record 58 billion dollars. The explanation for this situation is at once the fixed linkage between key countries like China's currency and the dollar, and the incapacity of American industry to substitute for imports.
(More ... t r u t h o u t - Eric Leser | How Much Longer Can the American Economy Live on Credit?) ¶ 12:20
