Monday, April 24, 2006
The economic time bomb keeps on ticking, for now.
Paul Krugman has some thoughts on the state of the US economy and they aren't pretty.
Here's the puzzle: the trade deficit means that America is living beyond its means, spending far more than it earns. (In 2005, the United States exported only 53 cents' worth of goods for every dollar it spent on imports.) To pay for the excess of imports over exports, the United States has to sell stocks, bonds and businesses to foreigners. In fact, we've borrowed more than $3 trillion just since 1999.It's scary to think that what happened to the Nasdaq in the last recession could happen to the entire country someday soon.
By rights, then, the investment income — interest payments, stock dividends and so on — that Americans pay to foreigners should be a lot larger than the investment income foreigners pay to Americans. But according to official statistics, the United States still has a slightly positive balance on investment income.
How is this possible? The answer, almost certainly, is that there's something wrong with the numbers. (Laypeople tend to treat official statistics as gospel; professional economists know that putting these numbers together involves a lot of educated guesswork — and sometimes the guesses are wrong.) But depending on exactly what's wrong, the U.S. economy either has hidden strengths, or it's in even worse shape than it seems.
Subscribe to Posts [Atom]
Post a Comment