	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 12-Jun-06
Trade deficit continued to grow in April

Web Log - June, 2006

Trade deficit continued to grow in April

What passes for good news in Washington is that it grew less than expected.

Economists had expected that the trade deficit would increase to $65 billion. Instead, it increased a mere $63.4 billion, only $1.9 billion larger than in March, according to the Dept. of Commerce.

According to a Financial Times analysis, "Many economists believe that the underlying deterioration of the trade position should moderate as US consumers tighten their belts and growth picks up in Europe and Japan. In recent weeks there has been mounting evidence that the long-awaited cooling of the US economy is under way."

There's a great deal of irony in this so-called analysis.

First off, economists have been saying for three or more years that "the underlying deterioration of the trade position should moderate," meaning that the size of the trade deficit should start to come down. But US consumers never do seem to "tighten their belts," do they? They just keep going deeper into debt.

Second, the "mounting evidence that the long-awaited cooling of the US economy is under way" is highly correlated to the recent selloff in the stock market. More of the "long-awaiting" cooling will mean more stock market selloffs.

The reason that I mention the trade deficit every now and then is because it shows that the mainstream economists, politicians, journalists and pundits don't know what they're talking about. If they did, the trade deficit would have been coming down for at least a year or two.

From the point of view of Generational Dynamics, the way to understand what's going on is to understand that a business, or any organization, starts out as "lean and mean," very efficient and energetic. But as time goes on, senior managers establish bureaucracies, products and services become institutionalized, and the organization becomes increasingly inefficient and inflexible, and vulnerable to attack by competitors.

In the case of America, this has happened to the country as a whole. During the Great Depression of the 1930s, almost every organization went bankrupt or renewed itself completely. But as time has gone on, many organizations -- federal, state and local governments, businesses, labor unions, public schools, colleges, financial institutions, military, and so forth -- have become increasingly bureaucratic. Averaging all these organizations together, the country as a whole is increasingly bureaucratic and inefficient, and has been losing manufacturing jobs to a more efficient China and service jobs to a more efficient India. This trend continues, so exports continue to level off, while imports continue to increase.

The only way to resolve this situation is another "cleansing depression" that forces most organizations into bankruptcy again, like the 1930s, so the cycle can start again.

Trade deficit (imports minus exports) continued to grow in April 2006 <font size=-2>(Source: Dept. of Commerce)</font>

Trade deficit (imports minus exports) continued to grow in April 2006 (Source: Dept. of Commerce)

The adjoining graph shows the story. The gap between imports and exports shows no sign of leveling. If you look carefully at the blue line (Exports), you can see that it's leveling off, indicating that, if anything, the trade gap is likely to increase if this trend continues. Generational Dynamics predicts that we're entering a new 1930s style Great Depression, and the crisis is expected sooner, rather than later. (12-Jun-06) Permanent Link
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Generational Dynamics Web Log for 12-Jun-06 Trade deficit continued to grow in April

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Generational Dynamics Web Log for 12-Jun-06
Trade deficit continued to grow in April