Debt and the Dollar
“Debt and the Dollar”
By L. Josh Bivens
The United States is currently in debt up to their “eye balls.” With a debt around $665 billion from foreign lenders the economy is in trouble. The U.S. current GDP is 5.7%, which is the largest in history. This large debt has led to the deterioration of the U.S. Net Income Investment Position (NIIP). The NIIP has reached 24% of the entire U.S. GDP. Because of the low interest rates in the past, this debt has not been a big problem. Figure 2 shows the projected increase for the NIIP for the next ten years. The projected outcome shows an increase from zero percent in 2004 to an increase of 1.7% in 2014. The longer the debt is there, the worse off American’s living standards will be.
The recent account deficit has formed primarily from the merchandise trade account; which accounts for 90% of the overall current debt. The trade deficit can be traced back to the value of a dollar. When the value of the dollar began to rise in 1997 the price of imports fell while the price of exports began to rise. As a result of these prices rising and falling, the U.S. had a merchandise trade deficit in 2004 with a GDP of 5.2%. The value of the dollar currently is around 94.6. Many studies show that the dollar still has a huge adjustment to make.
The latest news is the correction of the dollar/euro, which is also labeled as the first step to correcting the U.S. account deficits. China, Malaysia, and Taiwan are buying up dollars on global market to keep the value of their currencies from rising outside of the band. Figure 4 is a graph of three different indexes including: Broad, Major and OTIP. The broad index includes all of the U.S.’s trading partners, weighing the total trade with each country and the U.S. The major index includes Canada, the euro area, Japan, the U.K., Switzerland, Australia, and Sweden. These countries make up about 55% of the U.S.’s trading. The OTIP (other trading partners index) tracks Mexico, China, Korea, Taiwan, Singapore, Hong Kong, Malaysia, Brazil, Thailand, Indonesia, the Philippines, Russia, India, Saudi Arabia, Israel, Argentina, Venezuela, Chile, and Colombia. Theses nineteen countries make up the remaining 45% of the trade for the U.S. The OTIP index has not moved over the recent years, explaining to us how their monetary authorities tightly manage their currencies.
Overall the U.S. is in trouble about this current debt problem. The U.S.’s living standards are suffering from this terrible problem. When the interest rates begin to rise the U.S. will begin to see the real trouble with this debt.
www.epinet.org/content.cfm/Issuebrief203
By L. Josh Bivens
The United States is currently in debt up to their “eye balls.” With a debt around $665 billion from foreign lenders the economy is in trouble. The U.S. current GDP is 5.7%, which is the largest in history. This large debt has led to the deterioration of the U.S. Net Income Investment Position (NIIP). The NIIP has reached 24% of the entire U.S. GDP. Because of the low interest rates in the past, this debt has not been a big problem. Figure 2 shows the projected increase for the NIIP for the next ten years. The projected outcome shows an increase from zero percent in 2004 to an increase of 1.7% in 2014. The longer the debt is there, the worse off American’s living standards will be.
The recent account deficit has formed primarily from the merchandise trade account; which accounts for 90% of the overall current debt. The trade deficit can be traced back to the value of a dollar. When the value of the dollar began to rise in 1997 the price of imports fell while the price of exports began to rise. As a result of these prices rising and falling, the U.S. had a merchandise trade deficit in 2004 with a GDP of 5.2%. The value of the dollar currently is around 94.6. Many studies show that the dollar still has a huge adjustment to make.
The latest news is the correction of the dollar/euro, which is also labeled as the first step to correcting the U.S. account deficits. China, Malaysia, and Taiwan are buying up dollars on global market to keep the value of their currencies from rising outside of the band. Figure 4 is a graph of three different indexes including: Broad, Major and OTIP. The broad index includes all of the U.S.’s trading partners, weighing the total trade with each country and the U.S. The major index includes Canada, the euro area, Japan, the U.K., Switzerland, Australia, and Sweden. These countries make up about 55% of the U.S.’s trading. The OTIP (other trading partners index) tracks Mexico, China, Korea, Taiwan, Singapore, Hong Kong, Malaysia, Brazil, Thailand, Indonesia, the Philippines, Russia, India, Saudi Arabia, Israel, Argentina, Venezuela, Chile, and Colombia. Theses nineteen countries make up the remaining 45% of the trade for the U.S. The OTIP index has not moved over the recent years, explaining to us how their monetary authorities tightly manage their currencies.
Overall the U.S. is in trouble about this current debt problem. The U.S.’s living standards are suffering from this terrible problem. When the interest rates begin to rise the U.S. will begin to see the real trouble with this debt.
www.epinet.org/content.cfm/Issuebrief203
1 Comments:
At 2:19 PM, songbird said…
I agree with you fully that the US is is "deep" trouble with the current amount of debt. If the interest rate was to increase, which it probably will, then we will not even be able to afford the interest payments, much less start to pay off the debt.
Our living standards are ridiculous. While Gas prices and other things start to increase, our income stays the same. Therefor we do not have any left to spend on things that we want.
This world is headed for trouble.
BIG TROUBLE!!!!!
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