(Canadian Press)
The U.S. deficit in the
broadest measure of international trade soared to an all-time high of $665.9 billion US in 2004, showing in stark terms the speed with which the country is becoming indebted to the rest of the world.
The Commerce Department reported Wednesday that the shortfall in the current account was 25.5 per cent higher than the previous record, the $530.7 billion deficit set in 2003. The department also noted that
the deficit was worsening as the year ended with the shortfall in the fourth quarter hitting a record $187.9 billion, up 13.3 per cent from the third-quarter deficit.
The Bush administration contends
the soaring trade deficits reflect a U.S. economy that is growing faster than the rest of the world, pushing up imports and dampening demand for U.S. exports. But private economists are worried that the huge
level of resources being transferred into the hands of foreigners will eventually result in lower U.S. living standards.
In other economic news, the Commerce Department said construction of new homes
and apartments rose by 0.5 per cent to a seasonally adjusted annual rate of 2.195 million units in February, the fastest pace in 11 years. Construction of single-family homes hit an all-time high of 1.775
million units, up 0.3 per cent from January, and multi-family construction was up 1.7 per cent to 420,000 units. Analysts believe the housing sector, which has set sales records for four straight years, will
begin to cool this year under the impact of rising interest rates.
The current account trade deficit is closely watched by economists because it is the broadest measure of international trade,
covering not only trade in goods but also trade in services and investment flows between countries. The deficit for 2004 was not only a record in dollar terms but also as a percentage of the total U.S.
economy, climbing to 5.7 per cent of the gross domestic product, up from 4.8 per cent of GDP in 2003.
The deficit represents the amount in resources that the United States is transferring into the
hands of foreigners in exchange for foreign oil, cars and other products that Americans are purchasing. While foreigners have been more than willing to exchange their products for U.S. dollars, there is a
worry that at some point they will become less willing to do so and will seek to exchange dollars for other foreign currencies.
The dollar's value against other currencies has been declining for
three years but so far that decline has been orderly. However, some private analysts worry that one day the dollar might begin falling in value more sharply if foreigners suddenly decide to diversify into
other currencies and begin cashing in their holdings of U.S. stocks, bonds and Treasury securities. Such a development could send stock prices in this country plunging and interest rates surging.
Investor Warren Buffett warned in this year's letter to shareholders of Berkshire Hathaway Inc. that the United States could become a "sharecropper's society" by the continued transfer of U.S.
assets into foreign hands. He estimated the country's debt to foreigners could surge to $11 trillion by 2015. However, Federal Reserve chairman Alan Greenspan has said in recent speeches that he believes the
country's current account deficit will be resolved without sparking financial market turmoil as the weaker dollar makes U.S. goods more competitive in foreign countries while making imports more expensive -
and thus less appealing - to Americans.
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