Why the US Trade Deficit matters?
By Professor Peter Morici Finfacts January 9, 2008 On Friday, the US Commerce Department will release data for the November 2007 trade deficit. The consensus estimate is $60 billion, up from $57.8 billion in October. It may be a bit larger or smaller, but either way, it comes to about 5 percent of GDP, That is an enormous drag on national income and growth, and has corrosive consequences for our childrens future. Budget Deficit Sophistry In the discussions about the trade deficit, a great deal has been made of the US federal budget deficit; however, during the third quarter the current account deficit, which includes goods and services, net flows of foreign investment income and transfer payments, was $178.5 billion, but the federal deficit was only $57.3 billion. How can a $57.3 billion domestic financing requirement cause a $178.5 billion external deficit? In 1991, the federal budget deficit was huge and the current account was in surplus. When Bill Clinton left office in 2001, the b
