Today, the Commerce Department reported that the June trade deficit exploded to a record $55.8 billion, well beyond the $47 billion that had been forecast. The gap resulted from an 8.9% plunge in exports, while imports surged to a record $148.6 billion. This pathetic economic performance should be shocking evidence of the unsustainability of the fatally flawed U.S. bubble economy. Instead, the routine spectacle of analysts attributing the widening trade deficit to the underlying strength of the U.S. economy is analogous to a child attempting to convince his parents that the “F” on his report card really stands for “fabulous.” The only difference being that the parents don’t buy it.
The trade deficit is probably one of the few honest government reports. One reason for this is that since no one seems to care about the trade deficit, why bother to fudge it. Also, while the U.S. reports its deficits, its trading partners also report their respective surpluses. If the opposing numbers did not jive, all would know that the fix was in. However, I suspect, for good reason, that other government reports are not as reliable.
For example, also today, the Labor department reported that producer prices for the month of July only rose by .1%. Imagine that. According to the labor department’s math, energy prices only rose by 2.3% in July, despite the fact that during July, crude oil prices actually rose by 19%. But wait, it gets better. Last month, the Labor department reported that June energy prices actually fell by 1.6%. However, according to today’s trade data, the dollar value of oil imports in June rose by 17.7%. Does that mean we actually used almost 20% more oil in June than we did in May?
Here’s another paradox to ponder — according to the labor department, energy prices, which were used to calculate the PPI, were basically unchanged during the moths of June and July. Now, if the government is assuring us that the economic “soft patch” experienced during those very months resulted from higher energy prices, how can they simultaneously tell us that energy prices haven’t risen? This is yet another example of heads they win, tails we lose. When it comes to growth, the government blames the weakness on rising energy prices, but when it comes to inflation, the government tells us that energy prices aren’t rising.
Also this week the Government reported that July’s budget deficit swelled to $69.16 billion. Adding July’s budget deficit to June’s trade deficit produces a combined $124.96 billion of red ink. This is a feat unequalled in all of human history. Unfortunately, this dubious achievement we likely be short-lived, as America will probably break its own record in the near future. (Actually, I should wait until next month for July’s trade deficit, or use June’s budget deficit to get a more accurate monthly twin deficit record.) If they awarded medals for the category of economic imbalances, the U.S. would win gold, silver, and bronze!
If the monthly twin-deficits were annualized, they would require the world to make what amounts to an annual charitable contribution to the “worthy” cause of American consumerism of $1.5 trillion, or about $5,000 for every American man, woman, and child. Given that $5,000 is far more than the per capita income in many developing countries, such as China and India, this number is indeed hard to fathom. The numbers are sure to make central bankers in Beijing and Tokyo cringe at the prospect of having to purchase all those dollars to keep their currencies from soaring. In fact, this week we learned that Chinese inflation, a direct result of pegging the Yuan to the U.S. dollar, just hit a seven year high of 5.3% These surging deficits will only make defending the peg that much more inflationary. In fact, for all the talk about Chinese exported deflation, the reality is that America’s greatest export to China is inflation.
In a week filled with disappointing economic data and record high oil prices, the major stock market indexes were basically flat, with the NASDAQ composite now falling for six of the last seven weeks. If the stock market itself is a good leading indicator, it is certainly leading us in a direction opposite to the one that Wall Street analysts, government economist, and the Fed are pointing. Perhaps this $55.8 billion dollar trade deficit literally will be the “shot heard round the world” and the one that fatally wounds Greenspan’s bubble economy. I have often said that Americans will shop until their foreign creditors drop. Today’s numbers may well be the straw that finally breaks their backs.
Commentaries & market updates.
June Trade deficit 55.8 Billion! Not a typo
June Trade deficit 55.8 Billion! Not a typo
Today, the Commerce Department reported that the June trade deficit exploded to a record $55.8 billion, well beyond the $47 billion that had been forecast. The gap resulted from an 8.9% plunge in exports, while imports surged to a record $148.6 billion. This pathetic economic performance should be shocking evidence of the unsustainability of the fatally flawed U.S. bubble economy. Instead, the routine spectacle of analysts attributing the widening trade deficit to the underlying strength of the U.S. economy is analogous to a child attempting to convince his parents that the “F” on his report card really stands for “fabulous.” The only difference being that the parents don’t buy it.
The trade deficit is probably one of the few honest government reports. One reason for this is that since no one seems to care about the trade deficit, why bother to fudge it. Also, while the U.S. reports its deficits, its trading partners also report their respective surpluses. If the opposing numbers did not jive, all would know that the fix was in. However, I suspect, for good reason, that other government reports are not as reliable.
For example, also today, the Labor department reported that producer prices for the month of July only rose by .1%. Imagine that. According to the labor department’s math, energy prices only rose by 2.3% in July, despite the fact that during July, crude oil prices actually rose by 19%. But wait, it gets better. Last month, the Labor department reported that June energy prices actually fell by 1.6%. However, according to today’s trade data, the dollar value of oil imports in June rose by 17.7%. Does that mean we actually used almost 20% more oil in June than we did in May?
Here’s another paradox to ponder — according to the labor department, energy prices, which were used to calculate the PPI, were basically unchanged during the moths of June and July. Now, if the government is assuring us that the economic “soft patch” experienced during those very months resulted from higher energy prices, how can they simultaneously tell us that energy prices haven’t risen? This is yet another example of heads they win, tails we lose. When it comes to growth, the government blames the weakness on rising energy prices, but when it comes to inflation, the government tells us that energy prices aren’t rising.
Also this week the Government reported that July’s budget deficit swelled to $69.16 billion. Adding July’s budget deficit to June’s trade deficit produces a combined $124.96 billion of red ink. This is a feat unequalled in all of human history. Unfortunately, this dubious achievement we likely be short-lived, as America will probably break its own record in the near future. (Actually, I should wait until next month for July’s trade deficit, or use June’s budget deficit to get a more accurate monthly twin deficit record.) If they awarded medals for the category of economic imbalances, the U.S. would win gold, silver, and bronze!
If the monthly twin-deficits were annualized, they would require the world to make what amounts to an annual charitable contribution to the “worthy” cause of American consumerism of $1.5 trillion, or about $5,000 for every American man, woman, and child. Given that $5,000 is far more than the per capita income in many developing countries, such as China and India, this number is indeed hard to fathom. The numbers are sure to make central bankers in Beijing and Tokyo cringe at the prospect of having to purchase all those dollars to keep their currencies from soaring. In fact, this week we learned that Chinese inflation, a direct result of pegging the Yuan to the U.S. dollar, just hit a seven year high of 5.3% These surging deficits will only make defending the peg that much more inflationary. In fact, for all the talk about Chinese exported deflation, the reality is that America’s greatest export to China is inflation.
In a week filled with disappointing economic data and record high oil prices, the major stock market indexes were basically flat, with the NASDAQ composite now falling for six of the last seven weeks. If the stock market itself is a good leading indicator, it is certainly leading us in a direction opposite to the one that Wall Street analysts, government economist, and the Fed are pointing. Perhaps this $55.8 billion dollar trade deficit literally will be the “shot heard round the world” and the one that fatally wounds Greenspan’s bubble economy. I have often said that Americans will shop until their foreign creditors drop. Today’s numbers may well be the straw that finally breaks their backs.
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