How will the government cover up trade deficits that skyrocketed to 7% of the national output?
*Reuters, June 6, 2006:
"Strong foreign thirst for U.S.-denominated assets means the United
States can sustain a hefty current account deficit longer than others
without facing risks for financing it, a senior U.S. Treasury official
said on Tuesday.
Randal Quarles, the Treasury's under secretary for domestic finance,
faced questions at an international monetary conference from central
bankers who expressed some concern at a current account deficit that
now exceeds 7 percent of total national output.
Quarles conceded it was "a very high figure" but said the United
States' net external liabilities -- its ownership of foreign assets
minus its foreign liabilities -- have been stable at about 25 percent
of national output since 2002.
"A net external liability position of 20 percent to 25 percent of GDP
is very manageable for the United States and suggests that there is
substantial room for it to increase before it would begin to pose a
financing problem," Quarles said.
Treasury helps finance the deficit through regular auction of debt
securities, much of which is owned by foreigners.
"There'll always be a disproportionate demand for dollar-denominated
assets," Quarles said, noting that strong U.S. growth and its
relatively open markets make it an attractive investment site for
foreigners.
In his prepared remarks to the group, and in response to their
questions afterward, Quarles questioned why there seemed to be
"distress" over the country's financial condition and suggested that it
was overdone.
"The U.S. can sustain for a much longer period that I think many
observers believe a sizable current account deficit," he said. "There
is not a reason to believe that we are on the precipice, ready to
topple over and that at any moment this while thing might be ready to
snap."
The current account is the broadest measure of trade, including not
only goods and services but also capital flows between the United
States and the rest of the world."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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