|
|
|||
|
|||
|
|
Trade Deficit Hits New Record MoneyNews
(Headlines - scroll down for full stories)
After a long battle with deflation, Japan's economy is finally strong enough for the Bank of Japan to think about raising interest rates.
For nearly two decades, Japan's economy has experienced recession and deflation - a one-two punch that crippled the economy. To recover, the Bank of Japan first knocked interest rates down to zero, and, when that didn't revive the economy, it pumped cash into the market. Now, the Bank will focus on setting short-term rates instead of pumping cash into the market. It will continue to maintain its near-zero interest rate policy, but it will begin buying bonds back from the market, reducing the excess liquidity there.
Story Continues Below
The Consequences The jury is still out on whether this will be good for Japan's stock market. On one hand, individual investors rely on the easy-money policy, borrowing from banks to invest in the stock market. According to The Wall Street Journal, 49% of the purchases made by individual investors on the Tokyo Stock Exchange were on margin. The Net Securities Administration reports that 60% of total online purchases were also on margin. If that liquidity dries up, will individual investors sit on the sidelines? On the other hand, some analysts see this as a "return to normalcy" for the Japanese stock market. Japan's economy is growing and prices are rebounding, meaning that company earnings and profit margins should improve. Plus, big banks will benefit from their ability to charge higher interest rates. As for the bond market, most analysts agree that interest rates will rise - they have nowhere else to go but up - and bond prices will decline. However, prices likely won't collapse, as the Bank of Japan is going to buy bonds in order to dry up excess liquidity. In the U.S., most analysts agree that this is bad news for U.S. Treasuries and U.S. stocks. It's no secret that the U.S. depends on foreign investors to balance out its whopping trade deficit. If just some of the Japanese investors abandon the U.S. for their home soil, the U.S. markets could be in for some trouble. Editor's Note:
2. Trade Deficit Hits New Record America's trade deficit ballooned to $68.5 billion in January as imports of everything from wine to autos to cell phones increased. The January record puts the U.S. on pace for an annual trade deficit of $822 billion if this trend continues. That's nearly $100 billion more than America's 2005 trade deficit of $723.6 billion. The AP says, "For January, U.S. exports of goods and services rose 2.5% to an all-time high of $114.4 billion. But this increase was swamped by a 3.5% rise in imports, which also set a record at $182.9 billion. The trade deficit is the difference between what America imports and what it sells abroad." The widening of the trade deficit can be attributed to America's dependence on foreign oil - its oil bill climbed 4.3% to $24.6 billion. Also, imports of cars and auto parts rose 5.6% to $22.7 billion. And demand for foreign food products climbed by 6.2% to $6.4 billion. The AP reports, "U.S. exports of industrial supplies, capital goods and autos all set records in January as American producers benefited from increased demand as many of America's major trading partners showed stronger economic growth." Here's how America's deficit with its foreign trade partners stacks up:
Editor's Note:
3. China Engaging in 'Reverse' Marshall Plan? Historians still spend barrels of ink extolling the brilliance of the Marshall Plan, the post-World War II strategy that healed some geopolitical wounds by providing financing and loans for war-ravaged economies in Europe and Asia. As a recent op-ed column by Max Fraad Wolff, a doctoral candidate in economics at the University of Massachusetts, Amherst, in the Asia Times points out: "Wages paid and profits earned by U.S. enterprises able to export to Europe because of the Marshall Plan provided part of the tax revenues that Washington used to finance the plan. The enhanced demand for goods and services reduced the risk of sliding back into depression." So why is China engaging in what Wolff calls a "reverse" Marshall Plan? He has a theory. "To help sustain its massive exports to the United States, it recycles the resulting dollar inflow in the form of loans and asset purchases," he writes. "Here, the developing nation lends to the developed: money flows in the reverse direction." Wolff explains that through 2005, Chinese net holdings of U.S. securities were $810 billion. Significant Chinese trade surpluses with the U.S. are turned into dollar holdings - lent back to consumers and the government to enable the continuation of trade and development. In addition, over 50% of China's 2005 $200 billion-plus trade surplus with the United States resulted from exports by U.S.-based multinational corporations (MNCs). So it's becoming apparent that China is getting the better of this deal. "Inside China, industrialization and near- or above-double-digit GDP growth are greatly assisted by the massive inflows of foreign capital, technology and expertise," writes Wolff. "In sector after sector, production has moved to China from elsewhere, increasing employment, gross domestic product and political stability." Now economists express concern over the alarming amount of debt racked up by the U.S. and owed to China. Some also wonder whether China could survive if the American economy fell of a cliff. The fact is, Wolff concludes, that the U.S. may not be able to pay off its debts, at least on a timeline that the Chinese would favor. But Wolff isn't worried. "Such concerns miss a key point: They repeat the error of those concerned about the repayment of Marshall Plan debt," he writes. "Whether or not liabilities are ever fully honored, China's reverse Marshall Plan is central to the stunningly fast and broad-based industrialization of select areas of its economy. "Increasingly modern industrial infrastructure and productive capacity are catapulting China to the front ranks of the world economy. That achievement is infinitely more important and positive than any unpaid debts that may emerge." In the end, the U.S. is now just as dependent on China and its version of the Marshall Plan as Europe and Asia were on the genuine article back in the 1940s. Says Wolff: "The future will likely show the great historical importance of China's reverse Marshall Plan."
4. Report Tries to Explain Soaring Gas Prices A six-month study into skyrocketing natural gas prices concludes that traditional factors of supply and demand alone cannot account for the surge in cost and that a huge influx of money into speculative financial markets has reinforced the rapid rise in prices. The report was released by the Attorney Generals of four Midwestern states: Lisa Madigan of Illinois, Tom Miller of Iowa, Jay Nixon of Missouri and Peg Lautenschlager of Wisconsin. They found that natural gas prices climbed to all-time highs last fall and early winter, with spot prices exceeding $15 and wellhead prices surpassing $10 per million BTU for the first time ever. By contrast, gas prices had hovered around $2 to $4 per million BTU for much of the last two decades. Future prices today are far above the costs of production and, if realized, could cost consumers hundreds of billions of dollars more, the report says. People are already feeling the effects of those increases, with this season's average winter heating bills projected to exceed $1,000 for the first time in history. "These price increases are a problem that is both regional and national, but which is often insufficiently explained as a product of growing demand chasing dwindling supplies," said Lautenschlager. The report found greatly divergent opinions and contradictory explanations for the recent roller coaster of prices. It also took a closer look at the physical market for natural gas, concluding that supply-and-demand fundamentals did not explain the price increases. "What we found does not support this commonly held notion that a 'soaring' demand is driving natural gas prices," Nixon said.
"Both demand and supply have been relatively flat and steady over the past decade. The price of natural gas, meanwhile, has been all over the place, with peaks and valleys that constantly ratchet upward. This pattern does not square with traditional economic analysis of supply and demand." Editor's Note:
Editor's Notes:
|
|
|||||||||||||||||||||||||
Print Page 
Forward Page 
|
| All Rights Reserved © 2009 NewsMax.Com |