Brad DeLong's Semi-Daily Journal: Bad Trade Deficit News: "This is a much bigger piece of news than one usually gets with a monthly release--and it's not good news. Each month the trade deficit gets bigger makes it more and more likely that we will have serious macroeconomic trouble when America's savings and investment flows start to come back into balance."
Economists tend to believe in a tendency toward general equilibrium, even when the data repeatedly show them something else. And, we common people tend to interpret the "trade deficit" as an indicator of some things, which it is not. In fact, the trade deficit is a mirror of the budget deficit. The underlying reality is that the U.S. is living high on the hog, courtesy of China, who is willing to sell us all manner of manufactured goods, cheap. Anyone, who has been to Wal-Mart or Ikea or J.C. Penney's knows just how cheap. The downside to this is that manufacturing in the U.S. has been made artificially unprofitable, and manufacturing employment and investment is declining rapidly.
Will there be a day of reckoning? That, of course, is what we fear/hope on the "Coming Perfect Storm" -- that the profligacy of our ways and its unwisdom is brought home to the American People in a dramatic event. Some of us know that President Torture is the Worst President Ever(tm), but the popularity of Bush is tied very much to the price of gas and what people see on Fox News and CNN. Trade deficits sometimes do end badly, especially for "small" countries like Argentina. For the U.S. -- not so likely. This is more of a boiling lobster kind of thing -- the increasing, relative poverty of the vast majority is a gradual trend, and the vast majority is not even aware that it is a result of deliberate political choices made by people the majority [foolishly] elected.
If a crisis were to occur, it would be most likely to be caused by a clumsy attempt to change course. Sadly, Bush will most likely never be called to account for impoverishing America, except by wonky historians, who, in turn, will be marginalized as leftists in the academy. If a crisis comes, it will be because a Democratic President attempts to return the country to fiscal sanity, and the attempt goes wrong. The American People, in their wisdom, would, of course, not blame Bush.