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Economic Growth Detoured by Trade Deficit

Credit & Housing Bubbles cause Recession

 

The trade deficit, along with the credit and housing bubbles, were the principal causes of the Great Recession. Now, a rising trade deficit and continued weak dollar threatens to stifle the emerging recovery and keep unemployment near 10 percent through 2011.Wall Street Grand brings our member's not only the Best Penny Stock List but OTC Stock Picks but also the resources and support you need to Buy Penny Stock effectively in today's complex financial market..

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  Economic Growth Detoured by Deficit

    Trade deficits, along with the credit and housing bubbles caused the Great Recession

 
 
 

The trade deficit, along with the credit and housing bubbles, were the principal causes of the Great Recession. Now, a rising trade deficit and continued weak dollar threatens to stifle the emerging recovery and keep unemployment near 10 percent through 2011.

At 3.1 percent of GDP, the trade deficit subtracts more from the demand for U.S.-made goods and services than President Obama's stimulus package adds. The, Obama/ Geithner stimulus although temporary did result in avoiding a prolonged recession, whereas the trade deficit is permanent and growing again.

Products from China and oil imports account for nearly the entire deficit, and both will rise as consumer spending, oil prices and inflation rise through 2010.

Consumer spending on Chinese goods and Middle East oil reduces spending on U.S.-made goods and services, unless offset
by exports.

When imports substantially exceed exports, Americans consume much more of those products. The American incomes/low wages they earn producing American goods and services continues to shrink. The net effect is the demand for what they produce is not in demand, inventories pile up, layoffs result, and the economy continues with slow growth and potentially a double dip recession occurring.


To keep Chinese products inexpensive on U.S. store shelves and discourage U.S. exports into China. The Chinese undervalues the Yuan.


An issue that some lawmakers and labor groups have focused on in the United States is the need for China and some other Asian countries to allow their currencies to appreciate. A stronger Yuan would make Chinese exports more expensive, encourage Chinese consumers and businesses to spend more, and help "rebalance" a flow of trade that has allowed the country to accumulate some $2.5 trillion in foreign reserves. Beijing accomplishes this by printing Yuan and selling those for dollars to augment the private supply of Yuan and private demand for dollars. In 2009, those purchases were about $450 billion or 10 percent of China's GDP, and 28 percent of its exports of goods and services.  In 2010, the trade deficit with China is reducing U.S. GDP by more than $400 billion or nearly three percent. Unemployment would be falling rapidly and the U.S. economy recovering more rapidly but for the trade deficit with China and Beijing's currency policies.

Longer term, China's currency policies reduce U.S. growth by one percentage point a year. The U.S. economy would likely be $1 trillion larger today, but for the trade deficits with China over the last 10 years.

In negotiations with U.S. Treasury Secretary Timothy Geithner, China has suggested a three percent revaluation of its currency over the next year; however, such a small change would do little to change those numbers. In fact, because of Chinese modernization, the intrinsic value of China's currency rises each year. Hence, a three percent revaluation over the next year would not even amount to the change in Yuan undervaluation.

As the U.S. trade balance with China grew worse, Beijing could say "see exchange rates don't matter."

President Obama and Secretary Geithner must weigh much tougher and creative economic policies against Chinese, trade or China's trade policies will impose slow growth and high unemployment on the United States.

 

 

 

 

 
 

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