Where is the US economy headed?

Harbingers of Harder Times


Published: March 12, 2005

At $58.3 billion, the United States' trade deficit for January exceeded everyone's worst expectations. The huge mismatch reported yesterday between imports and exports just missed breaking the monthly record, set last November, and is all the more remarkable for occurring in a month when the price of oil actually declined.

The trade deficit is the single most important factor in measuring the extent to which the nation lives beyond its means. As such, it should force us to own up to the dangers of rampant deficit spending. But the White House is showing no sign of action, as if doing nothing might make the problem smaller.

In response to yesterday's trade deficit figure, the dollar weakened against the euro and the yen, and traders predicted further declines in the weeks and months ahead. That, in turn, contributed to a drop in stock and bond prices. Such gyrations are certainly not unprecedented. The dollar has been on a downward trajectory for three straight years and was going into a fresh skid even before the latest trade deficit figure was released.

That slump was largely in response to recent reports, some later denied, that Asian central bankers may begin moving their huge dollar holdings into other currencies. That would mean higher interest rates in the United States because the government would need to sweeten Treasury yields, and higher interest rates imply further declines in stock and bond prices. A declining dollar also risks higher inflation; more expensive imports give domestic producers an excuse to raise prices.

The first six years of Bush's presidency were GOP majority.

By arranging for Bear’s shareholders to get a tip " it turned out to be $10 a share in JPMorganChase stock at the time (worth around $9 a share these days, based on JPMorgan’s recent stock price) " and for Bear’s creditors to get 100 cents on the dollar for what was a bankrupt company (where creditors would likely fight for years over the carcass), these three men single-handedly sent to the market a powerful message it would all too quickly misinterpret, much to our collective peril: For the first time in the history of American capitalism, the federal government would not let a big Wall Street securities firm fail.


As painful as it may have been at that time, the Committee to Save the World, Version 2.0, could have just as easily sent a very different message, one sent to the shareholders and creditors of poorly managed companies all the time: Too bad.

You took risks you didn’t understand? Got too greedy? Took your eye off the ball? Kept in place executives and their cronies on the board of directors who should have retired or been replaced years earlier? Well, then, you are about to learn the valuable lesson of American capitalism and what it means to take stupid risks with other people’s money. You will lose your investments, your jobs and your company. Sorry about that. Stuff happens. The market understands that message loud and clear.

"Bush got us into this great recession." after the Democrat majorities in the House and Senate refused to correct Fannie and Freddie as Bush requested.