The only thing more amazing than today’s release of yet another in an uninterrupted
string of horrendous monthly merchandise trade deficits is the lack of attention
such deficits receive in the media. Most of today’s attention is on the routine
release of supposedly benign monthly pro forma CPI data. Big deal!! The balance
of payments is the single most important economic statistic baring on the overall
health of an economy. America’s enormous balance of payments deficit reveals
an economy that is fundamentally sick. Many incorrectly blame the worsening
of the trade balance on weakening foreign demand. However this is not the case.
The fault lies not with our trading partners but with ourselves. It is not
lack of foreign demand, but rather a lack of domestic supply, that is the problem.
American’s non-completive, unproductive, mal-invested economy is simply incapable
of supplying the goods that our trading partners demand. In is only a matter
of time before those partners refuse to accept our IOU’s (financial assets)
in exchange for their products and demand payment in real goods. When that
inevitable day arrives, the dollar will collapse, interest rates and consumer
prices will soar, and Americans will no longer be able to lay claim on the
productive output and scarce savings of the rest of the world. Finally Americans
will be forced to live within the limited means that a de-industrialized, savings
short, economy can provide.