economic report of the president

bill gross is the managing director of one of the largest bond funds in the world. he is also not impressed by what he read in bush’s annual report on the economy (written by former chairman of the council of economic advisors and current chairman of the federal reserve ben bernanke). the part of the report that has been getting big laughs on the finance blogs that i read is how the bush administration refers to the current account deficit by its necessary corollary (by definition), the capital account surplus. the bush administration is lying just as much about the strength of the economy as they are about the progress in iraq. people are willing to believe the lies about the economy, and keep buying whipped decaf iced frappelattes with their credit cards (although bush is not very popular. 34% OUCH).

It’s in chapter 6 that the gang really becomes its most imaginative. Why admit to a chronic malady known as the current account deficit when tautologically you can discuss, and in fact label the entire chapter “The U.S. Capital Account Surplus!” A surplus sounds better than a deficit does it not? And if these surplus inflows reflect foreign investor preferences for “higher risk-adjusted U.S. returns,” then all the better. You see folks, it’s not that we’re spending too much, it’s that foreigners are “pushing” (yes those are the authors’ words) in these funds because we’re so damned productive and we’ve got no recourse but to reap the rewards and shop ‘til we drop. Well, maybe as the gang suggests we should save a little of it to bring down this capital account surplus, but it’s really China, they claim and other Asian countries which need to promote higher domestic demand. Nowhere in the chapter is there a chart on the current account deficit. Instead we are treated to the rosier mirror image appearing in Chart 4 – “Net Capital Inflows.” Additionally, we are told that these inflows (deficits) can continue indefinitely as long as we use these investments (spending) to promote economic growth.






One response to “economic report of the president”

  1. […] USD$8.28 trillion. your share, if you are lucky enough to be an american, is $27,713.58. (well by the time you read this it will have gone up). luckily that swelling debt is being spent making our country stronger, safer, smarter and more competitive. how do i know? i saw it printed on a huge sign behind president bush when he was extolling the virtues of staying the course. oh yeah, and the current account deficit went up 20% in the fourth quarter of 2005. (or as they like to say around the white house these days, the capital account surplus went up 20%). Total US exports are just 10.5 per cent of GDP. In order to eliminate the deficit, exports would need to increase by 70 per cent. “This is clearly not going to happen,” said Mr Ashworth. “Instead it will require a big dollar depreciation alongside much weaker domestic demand for imports.” […]

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