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Yesterday, the Commerce Department reported the first quarter current account deficit was $176.4 billion, up from $167.2 billion in the fourth quarter of 2007. The deficit was 5.0 percent of GDP.
In the first quarter, the United States had a $36.1 surplus on trade in services and a $29.8 billion surplus on income payments. This was hardly enough to offset the massive $211.0 billion deficit on trade in goods, and net unilateral transfers to foreigners equal to $31.2 billion.
The cumulative effects of this borrowing are frightening. The total external debt now exceeds $6 trillion. The debt service at 5 percent interest, amounts to $2000 for each working American.
The Chinese government alone holds enough U.S. and other foreign reserves to purchase about five percent of the shares of all publicly traded U.S. companies. The U.S. trade deficit is the primary driver behind this phenomenon.
Were the trade deficit cut in half, GDP would increase more than $250 billion or more than $1750 for every working American. Workers’ wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.
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