August trade deficit reaches fresh historic high -- that's GOOD NEWS, say economists - 12-Oct-06 - Generational Dynamics

The deficit, up 2.7% from July's historic high, exceeds even the highest of economists' estimates, according to a Bloomberg survey of 66 economists.

Both exports and imports increased in August, but this is the same old story that I've described before as each new record high deficit was reached: Exports are growing exponentially, and imports are growing exponentially, but the growth rate for exports is higher than for imports, so the trade deficit continues to grow exponentially.

These concepts obviously are beyond the understanding of most economists, since they keep getting their forecasts drastically wrong.

Just what kinds of airheads these economists are can be seen from the Bloomberg summary:

"The deficit rose 2.7 percent from a $68 billion gap in July, the Commerce Department said in Washington, and exceeded the highest estimate in a Bloomberg News survey of economists. U.S. companies imported more computers, consumer goods and oil even as they shipped a record amount abroad.

The report was read as good news by economists, who said the gain in imports showed that consumer spending is holding up even as the economy slows. A weaker dollar and expansion in Europe and Asia are helping boost exports; at the same time a reduction in the deficit will be gradual because the economy is still growing faster than many of its counterparts.

"Strength in imports is typically associated with strong domestic demand," said Jim O'Sullivan, a senior economist at UBS Securities in Stamford, Connecticut. "Both imports and exports are growing solidly lately, which very broadly is a sign of growth."

Consumer spending, which accounts for two-thirds of the economy, "increased more quickly in a number of districts," the Federal Reserve said today in its survey known as the beige book for the color of its cover. Four of the Fed's 12 districts reported that "economic growth firmed" in the last month.

The August deficit compares with the $66.7 billion median estimate in a Bloomberg News survey of 66 economists. The dollar weakened in the minutes after the report was released before retracing much of its drop. Stocks advanced."

I read these reports all the time, and listen to reports on CNBC, CNN, and other stations, and I have to say that this is just about the stupidest I've ever seen. It's unbelievable that we've come to the point where a financial service like Bloomberg could publish an article as truly moronic and idiotic as this, quoting dozens of economists who make decisions about all our finances.

According to standard macroeconomic theory that's been around for decades, consumer spending should have come down years ago, and economists have been predicting it would. Why? Because loss of assets in the Nasdaq crash of the early 2000s gave consumers less money to spend. Then a rise in unemployment and loss of income gave consumers less to spend. On top of that, gasoline prices have risen from a $1.00-$1.25 range to a $2.00-$3.00 range, giving consumers less money to spend. With less money to spend, consumers should spend less. And they should import less from China and other countries.

That's all standard macroeconomic theory. And it's been proven totally wrong. Consumers have been spending more and more, by going into increasing levels of debt. Nothing in macroeconomic theory prior to this decade has come anywhere near predicting this result.

Of course, if consumer spending had gone down, the corporate earnings would have gone down, and the stock market would have fallen.

So the "state of denial" in which these moronic economists, macroeconomists, journalists, politicians and high-priced analysts has reached even more dizzying heights: The record high and exponentially growing trade deficit is wonderful news because it means that consumers are importing more stuff, even though it means that consumers are going ever deeper into historically high debt to buy this stuff.

And of course, analysts and newscasters on TV are visibly drooling over the possibility of the Dow reaching 12000, thus pushing the stock market bubble even higher -- on the same day that the trade deficit reaches a historic high. Why? Because an exponentially growing trade deficit is a GOOD thing. (12-Oct-06) Permanent Link
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August trade deficit reaches fresh historic high -- that's GOOD NEWS, say economists

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Generational Dynamics Web Log for 12-Oct-06 August trade deficit reaches fresh historic high -- that's GOOD NEWS, say economists

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Generational Dynamics Web Log for 12-Oct-06
August trade deficit reaches fresh historic high -- that's GOOD NEWS, say economists