What are the assumed problems/market outcomes of account deficits?

I'm glad I started this as this is exactly what I wanted to talk about and there's a lot of thought out stuff coming out here. Cheers guys.

NicenEasy, thanks for taking the time out to really get the ball rolling.

Now, I'm all for the theory that the US account deficit really doesn't mean a damend thing as long as people still believe in the dollar. Also, as long as company profits continue to look rosey (which, as already pointed out, will continue to come more from services rather than manufacturing) there is no need to start pullin money off the table.

HOWEVER, my concern (and I am not from the US by the way) is that you fellas might be in for one hell of a shock, say 15 years from now, when the world feels that safety does not lie exclusively within the dollar and there is a shift in perception as to where to protect your cash.

I'm not going to say that within 20 years the Yuan or Rhupee will be the currency of choice because I'm sure we've got at least half a century of spectacular political unrest, war, tax, health and bad debt stories to grind through before Asia is viewed as anything of a safe haven. However, perhaps holding a collection of other currencies with diversified exposure to both US/Asian influences may become more favourable than backing Uncle Sam outright.

If this were to happen, we are talking about a MAJOR shift in power/profitability and a real problem for the US. I think it is plausible that a shift in thinking could occur within 10 years that would have enough of a permanent negative effect on the dollar to cause a problem.

I could, however, also be talking complete rubbish but I think it is a possible outcome.
 
Quote from The Kin:

^ If US economy tanks, the world economy tanks. That's the beauty of it. They need us as much as we need them.
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I agree with you, and I think this is what will keep us going for the next few years.

The only thing I wonder about is what will happen as all the people in China and India (about 1/3 of the world's population if I remember correctly) gain wealth from their trade with the world. What if in 10 yrs or so from now they don't need us to buy their goods anymore? Who will finanace our debt then?

Granted, I think it will take a long time for consumers in China and India to support the global economy like the US does, but it seems like only a matter of time to me. Even if the average consumer over there does not spend like people in the US, the size of their population could make up for it.

The US seems to think we can spend our way to prosperity. It seems to be working for now, but I do not see how that kind of philosophy is sustainable.
 
Quote from Covertibility:



Its pretty clear the only way to pay off debt is by raising taxes. To think raising taxes to pay off a debt that went into the pockets of the rich and military. Hoo hah!
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Wrong.

Regardless of tax rates, the US brings in approx 19% of total income in taxes. As rates rise, people simply find creative ways to avoid them, or work less.

The tax cut did not decrease revenues. The big spending increase is what put us in the debt situation.
 
Quote from Covertibility:

If you don't elect Republicans, you wouldn't have the huge amount of debt you have now (thanks Ronald Reagan and George Wmd Bush). The debt levels are a potential problem, everything else is fine.
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The debt-to-GDP ratio is half of what it was in 1946, and lower than it was in 1996.
 
image001.gif


Chart pulled from this site United States National Debt.

According to the White House, gross fed. debt as a % of GDP in '96 was 67.3% while the 2005 (estimate) is 65.7%. They do estimate it to hit 70% by 2010 but lets not go too far out since no one really knows what Generalissimo Bush will do in the next few years.
 
Hey I just noticed someone deleted my post earlier in this thread.

ROFL. Just for a laugh, who deleted it.

Well at least one guy quoted it "If you don't elect Republicans, you wouldn't have the huge amount of debt you have now (thanks Ronald Reagan and George Wmd Bush). The debt levels are a potential problem, everything else is fine. "
 
Just for fun lets add the other monster deficit:

Current Account Picture
capict20060314.gif



Looks like the US needs to go back to selling WMD's and miltary equipment to rogue nations like Iran and Iraq like it did in the 80's to get the monster under control.

(And no I'm not in the camp that believes the overvaluation of the dollar contributes to this deficit. I just needed an updated chart of the CA deficit.)
 
Quote from Covertibility:

image001.gif


Chart pulled from this site United States National Debt.

According to the White House, gross fed. debt as a % of GDP in '96 was 67.3% while the 2005 (estimate) is 65.7%. They do estimate it to hit 70% by 2010 but lets not go too far out since no one really knows what Generalissimo Bush will do in the next few years.
More...

yeah it's a good chart. i kind of like it.


it shows just how great the republicans are at working the system. they know where the REAL theft is at. damn that's impressive. the populace is clueless to it.

the democrats don't understand that game, but they're excellent at sucking out tax dollars (based on guilt, or elitism, or whatever emotional tactic they can conjure up).


BUT EITHER WAY, WE'RE SCREWED.
 
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