Spending Like a Drunken Sailor

The US Trade Deficit edged over 5% of GDP for 2004. The Commerce Department reports that the Current Account deficit grew to a record $665.5 billion in 2004, totaling a record 5.7 percent of GDP. What is even stunning is that the US Current Account grew by 13 percent to a record $187.9 billion in the fourth quarter of 2004.

The 5.7% number is an interesting benchmark in my mind. The reason is supporters of Supply-side economics (1980s Reagan-omics and 2000s Dubya-nomics) have always argued that a deficit less than 5% of GDP is sustainable and even healthy.

I’m not ideological in my thinking – I just support good economics when I see it – but with the US government borrowing so much it makes me nervous for the private sector. With the government sucking up all this cash there is less to go around for private investment – where the “real” progress is made. Plus it raises your interest rate and you end up paying more.

Also, who controls the US economy is becoming a bit confusing – foreign-owned assets in the United States increased $460.2 billion in the fourth quarter and $1.4 trillion in 2004. I bring this up because with greater international exposure the economy becomes more volatile.

There are much smarter folks out there working on this stuff. I just work with mortgages, but I smell something headed in the wrong direction here. I don’t know – debt can be healthy, but this pace is a bit scary. I think the biggest wildcard for interest rates is what the Feds decide to do with this runaway borrow-and-spend mentality!

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