Thursday, October 12, 2006

Trade Deficit hits new high

The United States trade deficit hit another record in August, surprising many economists. Americans are now consuming around seven percent more than they produce.

The gap between exports and imports was increased by high oil prices and American demand for imports. The deficit with China rose to a new record. Surprise, the Chinese government today announced a soaring and record trade surplus. On the positive side Boeing (our largest single exporter) sold a lot of airplanes in global markets.

I wonder why this record trade deficit does not get more attention in the business media. The trade deficit is one on the most misunderstood stats in Macroland. Explaining the trade deficit and what it means would be a great idea for a Discussion Board post. Are the Chinese seducing naïve American consumers into buying too much stuff from them? Be sure to read Chapter 18 in your text book before you post.

"It is a pretty bad figure," economist David Sloan of 4Cast Ltd. in New York told Reuters. "We now expect to see a pretty weak third-quarter GDP figure, significantly below 2 percent." Remember the role of net exports in the GDP calculation in Chapter 7 of the Colander text.

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