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U.S. deficit with a China spin

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forecast_down October 17, 2011 (Chinavestor) The U.S. government closed its books for 2011 on Friday with the following numbers. Total revenues reached $2.3 trillion, an increase of 6.5%. But total expenses amounted to $3.6 trillion, leaving the nation in a $1.3 trillion hole. To put it another way: the government borrowed 36 cents for every dollar it spent.

It's easy to put fingers on China, a country the U.S. has the largest trade deficit with. It looks like China is one of the largest contributor to our financial woes.

us_china_trade_gap

But there is a whole lot more to a huge government deficit than just a widening trade imbalance with China. For one, had it not been for cheap manufactured goods from China, consumer products were more expensive. Who would want to pay $350 for a baby stroller, a price Europeans pay, when China can supply it for $100 at Wall Mart? Many argue that they would be willing to pay more for products had they been made in the U.S.A. But the fact of the matter is that a large number of companies chose China for manufacturing because their more expensive U.S. manufactured goods were less appealing for price sensitive consumers.

And here is another fact to think about. Thanks to an over $1 trillion federal debt for three consecutive years, current total debt stays at $14.8 trillion. But debt service was just $227 billion thanks to super low interest rates. The FED has been doing an outstanding job in exporting our debt at super low rates... to who?... U.S. financial institutions and China! Yes, the Chinese lend us money at super low rates so we can continue to live the way we are used to. It's not that they want to but rather they have no choice. Yet.



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