The Rural Patriot

September 18, 2006

Deficits and GDP – New Commerce Dept. Numbers

Filed under: US Economy — theruralpatriot @ 2:22 pm

This graph is a representation of the national debt in relation to GDP, not of actual debt.

WASHINGTON (AFX) – The US current account deficit widened to 218.4 bln usd in the second quarter, up 2.4 pct from the previous three month period, the Commerce Department said Monday.  The deficit amounted to 6.6 pct of the nation’s gross domestic product and was wider than the 213.5 bln usd gap predicted by analysts.

The deficits through the first six months of this year put the country on track for a fifth consecutive annual deficit, surpassing last year’s mark of $791.5 billion. The record high for a single quarter was a $223.1 billion imbalance in the October-December period last year.

The United States recorded a record deficit on investment flows of $4.2 billion. That meant that foreigners earned more on their U.S. investments than Americans earned on their overseas investments.

For the first half of 2006, the current account deficit grew 12.1 pct to 431.6 bln usd, also totaling a 6.6 pct of GDP.  To make matters worse, the deficit in the first quarter was revised to 213.2 bln usd, compared with the initial estimate of 208.7 bln usd.

Some economists are worried that foreign investors will lose their appetite for US assets, causing the dollar to fall sharply and forcing interest rates higher to attract the needed investment.

The deficit represents the amount the United States must borrow from foreigners to cover the shortfall between exports and imports.

Net flows of capital into the United States fell to a much smaller-than-expected $32.9 billion in July, less than half of the nation’s trade deficit in that month, the Treasury Department said Monday.

How much longer can we afford these trends?

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