20 Jul

US deficit at all-time high. Oil price too

Well, I know politics gets ugly if needed, but the point is not the goal of US politics agenda, which is or rather should be to the benefit of US tax-payer. It’s rather about the way it’s done and the fact that US itself is trying to impose a different standard pretending it’s holding on to a single one. After all, US politics instated so many dictatorships in the name of democracy and freedom.

Securing cheap and relatively stable oil resources it’s quite a dream now that the oil price is at it’s all time high, stability in Iraq is rather a dream and the costs of war on terror exceeded by far any initial estimate.

Keeping the discussion strictly to economics, let’s not forget that the U.S. deficit in the broadest measure of international trade surged to an all-time high last year ($665.9bn), increasing a potential threat to the economy as the country sank deeper into debt to Japan, China and other nations. All that despite the fact that the falling dollar was supposed to close our trade gap by increasing the attractiveness of goods made in the US to both domestic and foreign consumers.

The current account deficit represents the amount of financing the United States needs to cover its international accounts, and thus covers all aspects of foreign trade, from goods and services to investment flows among countries.

Foreigners have been happy to sell cars, computers and clothing to Americans and accept dollars in exchange. That money then is invested in the U.S. stock market, corporate bonds and Treasury securities.

Analysts worry the deficits are so high that foreigners could at some point lose their appetite for dollar-denominated investments. That could lead to a rush for the exits, plunging the value of the dollar and stock prices while causing interest rates to soar.

The higher interest rates would act as a drag on the U.S. economy. They would force up borrowing costs, for example, for home mortgages, auto loans and the investment spending that businesses need to expand.

“We can’t keep running current account deficits at these levels. It means we are borrowing nearly 6 percent of our GDP from the rest of the world, and the gap is growing,” said David Wyss, chief economist at Standard & Poor’s in New York.

It’s true that US Economy is still high, as compared with all others, but it seems that it’s oil based strategy has no future in the long term, and long is not that long enough;).

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