U.S. trade deficit explodes to a record high.

[FalafelsRule]

The US trade gap exploded to a record 55.8 billion dollars in June, the sharpest deterioration in more than five years, the government said.

The shortfall mushroomed 19.1 percent, the biggest one-month rise since February 1999, to a seasonally adjusted 55.8 billion dollars, the Commerce Department said.

The trade gap shattered the previous record deficit in April of 48.2 billion dollars, and appeared to put the country on the path to an unprecedented annual deficit.

Source: AFP

You just got to love Bushonomics, woo hoo!

[ebola]

so what are the ramifications of a trade-deficit?

ebola

[FalafelsRule]

Are you trying to quiz me or something? I know, that you know the ramifications. I am at work right now and cannot get into detail. I'll post a list of the negative effects of this later.

[ebola]

No...I really wanna know...

I do know that a trade-deficit can depress a country's GDP...but I know little of the ramifications beyond that.

ebola

[ebola]

*bump*
...I guess I asked a very boring question.

[Tame]

I'm waiting for FR to answer it so I can correct him. :tame:

[Tame]

Okay, I will be nice. Here are some artcles on the topic:

Are trade deficits bad? This article says no.
http://www.cato.org/dailys/1-23-98.html
+
http://www.cato.org/testimony/ct-dg061198.html

Are trade deficits bad? This article says yes.
http://www.brookesnews.com/031310tradedeficit.html

The US running large trade deficits is nothing new.

[ebola]

Let me think if I can reason this out here...some of these writers claim that the trade deficit has been offset by foreign investment in American capital.

So, via the deficit, we have on one hand downward pressure on GDP.
But, via foreign investment, we have upward pressure on demand in the money market...

so...its time for me to take econ 202 again and put down this book by Paul Sweezy...

but, if I remember what is on the axes of the money market graphs...
the money demand should increase, causing rising interest rates and an increase in money supply...

so...moving back to the aggregate graph of supply and demand, shouldn't we see falling aggregate demand because of the change in interest rates? At the same time, wont the increase in money supply cause prices to rise (i.e., inflation)? God, I'm rusty! :)

ebola

[Tame]

Ebola - I'm not ignoring you, I just haven't had time to break down what you asked in your post. I'll break out my supply and demand curves sometime in the next week and give you an answer.

[ebola]

np.
I think something is fishy about my logic.
im not very well versed in neoclassical analysis.

[Tame]

np.
I think something is fishy about my logic.
im not very well versed in neoclassical analysis.


Yeah, a couple of things jumped out at me, but I want to think this through before I reply. You are on point for the most part, I think.
And yes, it has been a while for me too. I taught a class on macroeconomics 8 years ago, and haven't thought through most of this since.