Yes, the trade deficit is a national tragedy. The collapse of the dollar has been postponed far too long. Unfortunately, so long as the U. S. stock market continues to be a place to earn a good return on investment in a short period of time, the flow of money into the U. S. prevents the decline in the value of the dollar that the trade deficit would trigger, if those investors would just stop investing in our stock market.

Every month, every year the combination of good economic growth and trade deficit growth continues in the U.S., the less manufacturing capacity and the less financial assets retained in the U.S. I am ready to recommend a rapid increase in the Federal Funds Rate to cause a recession, if that is the only way to end the current pattern.

It is true that U. S. financial assets have been growing very rapidly since early 2003 and we are net gainers in wealth during the last 3 years.

However, past experience is no guarantee of the future, as the stock market demonstrated in 2001 and 2002 and 2003.

Apparently, a great many people in the U. S. want to live beyond their means, both in U. S. government financing, international trade and in their personal life. Unfortunately, the majority is going to create a country that my 10 year old granddaughter will have to rebuild if she wants a life like mine.

Because our economy has been stimulated by 8 years of fantastic economic growth (1992 – 2000) and by 5 years of monetary stimulation since 2000.

All such stimulations are gradually disappearing. Now the only question is how soon will our 3% yearly economic growth also disappear? To what degree is the confidence in America the psychological component of growth in our stock market and in the stability of the dollar? As confidence in George Bush declines, will confidence in America also decline?

The timing is uncertain, but the direction is clear.

The financial component is widely discussed and somewhat important, but the really important issue is the inability of U. S. firms to compete on the global market. Our trade deficit documents that failure, but it also guarantees its continuation and expansion. The money sent overseas to pay for our excessive imports is used to increase the efficiency level of our competitors and to expand their productive capacity.

The website that documents this aspect of the problem most effectively is “Economy in Crisis”. Check it out.

There is an issue about a weak dollar on foreign markets, or other foreign trade risks, but those issues are separate from the trade deficit.

Navin, I think you overlooked the rest of the article. Once upon a time, the US economy barely supported 30 million people, who were mainly subsitence farmers scratching a living out of the ground. Today the economy supports nearly ten times that number in relative royalty — with sewer hookups, running water (hot *and* cold), electriciy, washing machines, dishwashers, etc. What about the poor? I’m no expert on pverty, but I know several people in Fortaleza Brazil living in mud houses with no electricity or running water who think they wer in heaven if they actually earned half the US’s “poverty level.” The *truly* *poor* are statistical noise in modern-day US ( http://esr.ibiblio.org/index.php?p=164 ).

Where did all the money come from? In a static world, it could only come from being on the right side of trade defecits, but we don’t live in a static world. In our world that wealth has come from entirely new industries — computers, cars, aviation, etc. In fact, many industries have gone bankrupt over the years (ice harvesting, horse carriages, etc.), but today’s economy dwarfs 19th-century America’s.