Friday, February 10, 2006

The Trade Deficit & The Housing Bubble

"The U.S. trade deficit soared to an all-time high of $725.8 billion in 2005, pushed upward by record imports of oil, food, cars and other consumer goods. " The US trade deficit must be reduced. It is an economic noose that eventually will be tightened. The US spends way too much time and money buying, selling, renovating and financing bubblicious real estate. Figuring out and reducing the trade deficit is difficult but very necessary.


  1. Every time you borrow money for a price-inflated house or condo, that money is going straight to the treasury of the Peoples of Republic China. A good chunk of our money goes to Japan as well. You can thank China for buying all of our debt in dollars.

    You mind as well make your monthly mortgage check payable to the "Peoples Republic of China".

  2. Oh yeah, when you load up your SUV's gas tank, that $50 credit card payment goes directly to Saudi Arabia. Nothing like bubblicious oil prices.

    Buy a condo: you borrow from China.
    Buy some gas: you pay Saudi Arabia.

    God Bless the USA!

  3. No thank your elected members for the situation we are in. They have no backbone.

  4. No, blame ourselves. We elect representatives who promise us everything we want, provide plenty of pork for our districts, AND cut our taxes, to boot, essentially saying we can have it all for free. Our children and grandchildren will just love us as they visit our graves on foot in order to curse us for what we did to them. Maybe they will empty our gravesites to the dump and sell the property to raise some funds.

  5. yes, ultimately blame ourselves.

    I don't think our children will be cursing us. As long as America has the bomb, future Americans can default either implicitly (inflation) or explicitly (default). Of course the value of the dollar will go way down, but hey no debts ;) Don't think it won't happen.

  6. arlingtonva,

    Those bombs will be impotent if their delivery depends upon the military forces of a government that is no longer creditworthy and is unable to be funded. The Chinese will simply land their ships at our harbors and walk in and take over. By that time, things will be so bad for our children and grandchildren (or whatever generation of our descendants), that they will allow this without resistance. That is how the Roman Empire fell.

  7. dc_too,

    Maybe they'll use the ones our (grandchildren) sell them in a desperate attempt to raise cash.

  8. I don't expect anyone to use the bomb ;)
    I'm just saying any country that has a bomb is relatively safe from invasion and can refuse to pay any debts due.
    I would not be surprised if our children refuse to pay our debts.

  9. I just completed a compilation of articles from the NY Times that covered the 1980s real estate bubble in the NY Metro area as well as the resulting collapse.

    Please, take a look, pass it around, it's an eye opener..

    Home Prices Do Fall


  10. The first President Bush characterized this practice of spending without paying as "voodoo economics" in 1980. That's what it was then, and still is today. What he didn't realize then was that those candidates who preach voodoo economics are the ones that get elected. The second President Bush, as well as most members of Congress, do understand that. And most voters are still persuaded by these promises. Something for nothing trumps something for something.

  11. just a friendly economic reminder that you need to look at the deficit as a percentage of GDP and not as an absolute number. still, it is higher than I would like.

  12. What happens to government revenues if thousands of thirtysomethings who bought at the peak of the housing bubble are forced to sell at hundreds of thousands less than they paid, and are able to claim capital loss carryovers for the next four or five decades? Won't this be bad for deficit reduction efforts?

  13. You can't deduct the capital loss on a sale of the primary residence.
    People will sell for 100k less and IRS won't help them. In fact, if they go into foreclosure, the IRS will treat this 100k as debt forgiveness which then counts as income.
    So now you have to pay 30k in taxes as well.
    Can't wait to see how this ends. The bubble bursting will be televised.

  14. Most of you guys have no idea what you are talking about. The post is about the TRADE deficit, not the BUDGET deficit. They are two completely different things.

    In any case the trade deficit is nothing to worry about. We've been running one pretty consistently since around 1980. Basically all my life have been warning about it and yet the sky has yet to collapse. In fact, there seems to be an inverse relationship between GDP growth and the trade deficit. The trade deficit shrank dramatically during the recession of the early 1990s. It spiked during the late 1990s when the economy boomed.

    We get goods and the foreigners get pieces of paper. Good for them.

  15. Do you know what % of our 'paper' the foreigners own?

    It grows every year.

  16. Its 33% of M3. Yikes. It means they can buy up a signifcant amount of our productive assests if they want.

  17. It really doesn't matter to me if our productive assets are owned by foreigners or Americans. In fact, if the foreigners know how to make them work better or more efficiently, I'd prefer it be them.

    BTW, nice blog.

  18. Hallelujah! Finally January numbers are coming out from NVAR. You gotta check out this link below. BTW, this winter is the warmerest on record, where the hell did the thirsty buyers go??? Cheer leaders, you said strong demand, solid employment growth, zone limit, %@&$^!@&*$^ will keep the bubble from bursting. WHY THE HELL INVENTORY INCREASED SO MUCH???