The U.S. trade deficit widened to $59 billion in August as record crude oil prices caused imports to rise, keeping the nation dependent on foreign investors to fund the shortfall.

The gap in goods and services trade was the third-largest on record and followed a $58 billion deficit in July, the Commerce Department said today in Washington. Both imports and exports were at all-time highs during the month, and the gap with China widened to a record on more shipments of textiles.

“The risks are to the upside for this number,” said John Shin, an economist at Lehman Brothers Inc. in New York. “No one thinks the appetite for imports will genuinely diminish in the U.S.”

Isn’t that comforting?  The risk for the trade deficit is to the upside.  No one seems to be doing a damn thing to change the course of this number.  The US continues to consume more assets than it produces – and no one gives a damn.  Hell, Treasury Secretary John Snow and President Bush think a trade deficit of this magnitude is good because it means the US is growing faster than other countries.  Technically, this is correct.  However, it is a convenient argument to paper over the real problem:  The US must still borrow about 2 billion dollars a day to finance its standard of living.  

But wait!  Today’s news is a two, two, two for the price of 1 deal!

Import prices rose 2.3 percent after a 1.2 percent gain in August, the Labor Department said today in Washington. The increase excluding oil was the largest since record-keeping started in January 1989 because of increases in natural gas prices.

Prices for imported oil, natural gas and other raw materials surged after Hurricanes Katrina and Rita slammed into the Gulf Coast, snarling port traffic and shutting down production and refining facilities. The Federal Reserve is warning of quickening inflation, and some companies such as consumer-goods producer Georgia-Pacific Corp. are passing on the additional costs to customers.

I have a great idea!  Let’s import inflation.  We don’t have enough here in the US; we need more.  Send us your poor, your tired, your inflationary pressures.

This is what an oil dependent economy means.  When the price of that commodity increases, we stand a good chance of importing inflation.  Which means the Federal Reserve will keep increasing interest rates, placing more stress on the housing market which has driven the US economy for the last 5 years…..you get the idea.

Here’s the bottom line with the trade deficit, in the words of Paul Volcker:

As a nation we are consuming and investing about 6 percent more than we are producing.

What holds it all together is a massive and growing flow of capital from abroad, running to more than $2 billion every working day, and growing. There is no sense of strain. As a nation we don’t consciously borrow or beg. We aren’t even offering attractive interest rates, nor do we have to offer our creditors protection against the risk of a declining dollar.

No one on the right will listen to him how that he didn’t give them Kofi Anan’s head on a platter in the oil for food scandal.  He’s no longer a good Republican.  But we could use a strong-willed economist who speaks his mind right now more than anything.  Although painful, he saved this country once in the early 1980s.  We could use that kind of leadership again.

Volcker
Import News
Trade Gap