No other country but the United States could get away with overspending on such a monumental scale.
by Melvin Rhodes
The U.S. trade deficit for April 2000 was
over $30 billion, a world record. In one month, the U.S. had bought $30.6
billion worth of goods and services more than it sold to other countries.
This trade deficit has been rising for some time, ironically one of the
consequences of the booming economy. As people have more to spend, they
are spending more of it on foreign-produced goods and services, leaving
a whopping deficit that is unprecedented in the history of the world.
The rising price of oil has made the deficit worse but is only part of
the problem.
Most countries use money that cannot be used
anywhere else outside their borders. These currencies are called "soft
currencies." About 20 of the world's wealthier nations have "hard currencies" that
can be used anywhere. American dollars can be taken almost anywhere in
the world and changed into local money. So can British pounds, French
francs and German marks.
These nations can overspend because people
will take their money. Those with soft currencies have to earn hard money
before they can buy anything from the rest of the world. Before a nation
in Africa can buy oil, it must sell its products to others to earn the
dollars or pounds it needs to buy the oil. One month it may sell more
than it buys. This is a "balance of trade surplus." If it sells less than
it buys, it suffers a "balance of trade deficit." After a couple of months
of trade deficits, these countries could not buy essentials from the rest
of the world.
The rich countries can get away with having
a deficit for some time—as long as other nations will accept their money.
They usually will do so indefinitely, as "hard currencies" tend to keep
their value and can be used almost anywhere for almost anything.
But even rich countries are concerned when
they have trade deficits. Mounting trade deficits often cause panic on
capital markets and stock exchanges, as they are likely to lead to increased
interest rates to avert a currency falling in value. Governments may also
enact legislation to create higher taxes and institute other control measures,
with the intent of reducing the deficit.
