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February 14, 2007

The Twins Part Ways

From the AP (via abcNews.com):

The deficit for the first four months of the current budget year is down sharply from the same period a year ago as the government continues to benefit from record levels of tax collections.

The Treasury Department reported Monday that the deficit for the budget year that began Oct. 1 totals $42.2 billion, down 57.2 percent from the same period a year ago.

From the New York Times:

The United States ran a record trade deficit in 2006 for the fifth consecutive year, the Census Bureau reported Tuesday in an announcement that quickly reignited the dispute between the Bush administration and Democrats over the value of past and future deals lowering trade barriers.

The bureau said that the trade deficit, or gap between what the United States sells abroad and what it imports, reached a new high of $763.3 billion last year, a 6.5 percent increase over the year before. The deficit was fueled by the continuing American need for foreign oil and imports of consumer goods from China and other countries.

The fact that the two deficits are moving in opposite directions is not really anything new:

   

Budget_and_trade_deficits

   

Twin deficits?  Not so much.

February 14, 2007 in Federal Debt and Deficits, Trade Deficit | Permalink

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Comments

While it is gratifying to see a graph indicating a decrease in the rate of increase in the cumulative Federal budget deficit, the continuing rate of increase in trade deficit is much more fundamental. One speaks to the Federal government deficit while the other speaks to a looming economic deficit.

The real question is "how long the US can continue to consume an excess of goods, produced off-shore, and maintain a vibrant, balanced domestic economy?".

Macro-economic theory clearly predicts that, at the peak of an economic boom, the Federal deficit should decline. We can all take one breath that, finally, the rate of growth of the deficit has, at least temporarily, declined. Okay, back to the wait for the other shoe to drop.

Macro-economic theory also predicts that, should massive losses of high paying jobs and key industries to Foreign competition bring on a recession, the deficit will increase.

The trade picture is much worse than the deficit picture is better.

Posted by: zinc | February 15, 2007 at 07:26 AM

The deficit picture that takes a climb from mid 2003 may be based on revenues received from capital gains on RE, but that picture may be quite different with a sobering of house prices now under way.

Posted by: calmo | February 15, 2007 at 11:48 AM

Please be wary of the budget deficit numbers. They do not include deficits incurred by war spending on Iraq and Afghanistan. These are "off budget" items which are not show in the normal quarterly budget deficit numbers. Including this would spread out about $500B in deficit spending over the period from 2003-2006.

Posted by: Sekar | February 18, 2007 at 01:02 PM

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