Media Ignoring Coming Money Crisis

by Robert Gelfand

(AR) SAN PEDRO -- Each day I look out my window and watch the trade imbalance accumulate. From a hillside overlooking Los Angeles Harbor, I can see freighters loaded down with cargo containers coming in from across the Pacific. Container ships also leave here headed for the Asian ports. What most people don't realize is that more than half of the containers they carry are going back empty.

A couple of decades ago, shippers stopped loading each carton and bale individually. Instead, they invented steel boxes, typically 20 feet long, to ship freight in. Now most containers are at least 40 feet long, the size of the trailer pulled by a full sized truck. In fact, containers are designed and built to be lowered onto a truck chassis and driven off the dock.

For historical reasons, seaports measure their cargo "throughput" in terms of the original 20-foot containers, the official term being TEU for "twenty-foot equivalent unit." A 40-foot container is two TEU's.

Last year, 3.9 million TEUs arrived at the Port of Los Angeles and 3.3 million TEUs left. Unfortunately for Americans who worry about our manufacturing base and economic health, 61 percent of those outbound containers went out empty, according to statistics from the Port of Los Angeles, an agency of the City of Los Angeles.

In other words, we are importing a lot but exporting markedly less.

It's actually a lot worse though. The top five classes of containerized imports in 2003 were furniture, apparel, electronic products, toys, and computer equipment. The top five classes of containerized exports were wastepaper, synthetic resins, fabric including raw cotton, animal feed and scrap metal.

So we are importing high quality manufactured goods while exporting garbage and a few agricultural products. Even then, only about two-fifths of the containers are sent back loaded with anything at all.

The Port of Los Angeles presents in microcosm what the nation as a whole presents to the world. We are buying high priced goods from the rest of the world and selling much less back. The result is that the United States is taking on more and more debt even as it is selling itself outright.

This was a major topic of discussion and debate thirty-some years ago. In recent years, although the problem has become much more severe, the press and the national government have all but ignored it.

Now comes an article in the March, 2004 American Prospect that puts the trade imbalance in its proper and scary perspective.

The American Prospect was created to be a liberal answer to conservative journals such as National Review. It was founded by Robert Reich and features a star cast of liberal writers such as James Fallows, Harold Meyerson and John B Judis.

Eamonn Fingleton is the author of "Trading Down: It's Not Whether Record Trade Deficits Will Become a Full-Blown Currency Crisis. It's When." This article is available online so a synopsis will suffice: As a nation, the United States is buying much more from other countries than it is selling to them. The result of this trade imbalance (technically referred to as the "current account deficit") is that we are building up debts that have to be financed. We are selling off our land and industries in partial payment even as the interest on the remaining debt is going through the roof. The problem is getting worse, not better, and the only question now is when the reckoning will come.

To put it in more colloquial terms, we are like someone in debt to a loan shark, getting hit for more and more interest on the loan to the point that we never can pay down the loan itself. Foreign corporations holding excess dollars buy up American land and whole companies, while foreign governments buy (and grudgingly hold) U.S. Treasury bonds. The result is a debt spiral that will only get worse if or when interest rates rise. As Fingleton puts it, "We are selling the family silver."

When it comes to economic discussions, the numbers always matter, so here are the important ones: We as a nation are incurring a current account deficit that approaches 5 percent of our entire gross domestic product. Fingleton refers to economists, including our government's own Trade Deficit Review Commission, who are predicting that the trade deficit will grow to somewhere between 7 and 10 percent of GDP within the next decade.

Some of us will remember the last great national debate on the trade deficit back in the 1970s. Fingleton points out, "By comparison, the notorious U.S. trade crisis of 1971-72 was a mere blip: The trade deficit in 1972, approximately 0.5 percent of the gross domestic product, was less than one-tenth of the current level. In truth, America's current trade position is a time bomb that sooner or later will explode with devastating political consequences for whichever luckless soul happens to occupy the Oval Office at the time."

Where are our mass media and our financial markets on this question? Fingleton's view would have to be characterized as a bit jaundiced: In recent years, the consensus both on Wall Street and in the media has been that the trade deficits "don't matter." Unfortunately, the economic thinking underlying this conclusion is as facile as the profits-don't-matter ethos that fostered the ill-fated dot-com bubble. All wishful thinking to the contrary, trade is still an important indicator of an economy's health.

Such alarm over our trade deficit has not characterized our mass media, nor has it described the tone in the financial press in recent years. Yet month by month, as the trade figures are reported on some interior page of the daily newspaper, we notice numbers going north of $40 billion per month, extrapolating to a yearly deficit on the order of half a trillion dollars. Fingleton's view of the situation is reflected in the title of his web site unsustainable.org. The mass media approach might be charitably characterized as ho hum.

Meanwhile, I look out my living room window and watch the ships enter the harbor. The Port of Los Angeles blithely forecasts ever-increasing cargo tonnage and works on plans to build the roads and railroad lines to carry it all. Environmentalists want to hold back all this land consuming, air polluting growth. I wonder if the laws of economics may do it sooner and more effectively, but at what cost to our prosperity?