U.S. trade deficit

[cormacobear]

Can the U.S. end it's debilitating, rising trade deficit. Was it enevitable or what U.S. policies can change it?

How would you fix it?

[Galatian 6:2]

I'm not a big fan of economics but I just finish my 3rd econ class, so here's what I believe the textbook classical answer is. The market will eventually work itself out and we will come back into balance because as we demand more foreign goods the value/price of the foreign currency appreciates while America's depreciates. Eventually, it becomes cheaper to buy the imported goods domestically and the exporting countries then become importers of American goods. Although, I don't think that would actually happen because I don't think the Fed (central bank) would allow our money to depreciate so much.... So...I'm really not sure what my answer is, but maybe somebody can add to or even tear apart this theory (not a big fan of classical econ).

[vivalache22]

What we really need is total reconstruction of the U.S. government. Which will never happen seeing as all the rich money making indivuguals are doing pritty good exploiting the poor, so were screwed.

[colombiano]

Today The US Federal Deficit is being Financed by foreign countries much of it by their central banks. Japan is holding 720 billion in US treasuries ;China 174 Billion. For a while the Fedral Deficit has been soaring, so has the US trade Deficit. At an estimated 665 billion this year, the current account deficit amounts to 5.7 percent of the US Gross Domestic Product and is forecast to reach 7 percent of the G.D.P in 2006- more than 50 percent higher than its previous historic peak.

[martingale]

Quote: "China (holds) 174 Billion (in US treasuries)"

How much leverage does this give China over US foreign policy, especially with regard to the question of possible American support for Taiwan independence?

[colombiano]

The US would like to think that it has leverage on the Taiwan issue but the economy is far to dependant upon China to make any real noise. (All bark and No Bite) A recent report that China might trim back its purchases of Treasury Bonds briefly gave the currency market jitters, pushing down the dollar. If China were to begin unloading its dollar assests, it could send the dollar into a free fall, forcing up US interest rates and potentially bringing on DEEP recession.Given China's dependance on exports to the US and its massive consumption economy and its Hoard of US Treasury Bonds no one expects Beijing to bring about a dollar collapse deliberately. However a collapse could occur nonetheless. With China holding Uncle Sam by the Balls.