Pony Party: Nobel Laureate & Wile E. Coyote

A long time ago, in an economic universe far, far away, people cared about the trade balance. When the U.S. trade deficit passed $100 billion for the first time, there was much wailing and gnashing of teeth. Doomsayers warned of an imminent ”hard landing” in which a crashing dollar would precipitate economic crisis. Even calmer types regarded the unprecedented red ink as a warning sign.

But a funny thing happened on the way to the 21st century: people lost interest in the trade balance. In January, the Commerce Department announced last week, the United States set a new world record: the biggest monthly trade deficit ever. (Is this a great country, or what?) Measured as a share of G.D.P., last year’s current account deficit (the broadest measure of the trade gap) was wider than ever before. But the markets couldn’t have cared less. They were more interested in the accounts of MicroStrategy (a high-flying tech stock that lost two-thirds of its value in one day when it adopted a new accounting standard) than in those of the United States.

http://query.nytimes.com/gst/f…

The Pony Party is an Open Thread.  Please do not REC the party!

Your government bailout plan at work:

But at a certain point we’ll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government’s access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

http://query.nytimes.com/gst/f…

So foreign investors, and therefore the value of the dollar, are arguably doing a Wile E. Coyote — one of these days they will look down, realize that they have already walked over the edge of the cliff, and plunge. And when they do it will come as a rude shock not only to them, but also to American financial markets that have become accustomed to big inflows of foreign money.

http://query.nytimes.com/gst/f…

During the 1990’s I spent much of my time focusing on economic crises around the world — in particular, on currency crises like those that struck Southeast Asia in 1997 and Argentina in 2001. The timing of such crises is hard to predict. But there are warning signs, like big trade and budget deficits and rising debt burdens.

And there’s one thing I can’t help noticing: a third world country with America’s recent numbers — its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world — would definitely be on the watch list.

http://query.nytimes.com/gst/f…

Lagniappe:

There’s so much evidence stacking up in the “Can’t These People Do Anything Right?” File, you’d suspect their secret strategy is to reward incompetence. It’s like the hiring of Michael “Brownie” Brown at FEMA or John Bolton at the United Nations — it’s just hard to imagine why.–Molly Ivins

http://www.alternet.org/column…