Another Nutty Concensus

The European economic consensus is that the US Twin Deficits are excessive and will to lead to disaster. As with the European-led Global Warming consensus, the facts undermine the predictions.

The first deficit is Federal spending (inflated by nasty wars) that’s way in excess of tax receipts (reduced by nasty tax cuts). The second is high imports (fat Americans buying too much stuff) way in excess of low exports (lazy Americans not selling enough).

Here’s the Brit Financial Times lip-smacking report of the view from Holland (my ellipsis):

Concerns over the unilateral stance of the US, as well as worries over the twin budget and current account deficits, have led ABP, the €209bn ($270bn, £138bn) Dutch pension fund, to cut its exposure to US equities.

However, Roderick Munsters, chief investment officer of ABP, said other factors were also at play. “We are a bit worried about the situation in the US, whether it is the twin deficits or a bias toward a unilateral policy or growth prospects for the US. Those factors play a role.

“We see the US as a country that is somewhat isolated in the international marketplace. They tend to operate along the lines of what is good for the US. That may be understandable but it does lead to some eyebrows being raised.

Sadly for eyebrow-raising Europeans, the Federal deficit is actually low and declining:

U.S. federal debt as a share of GDP is falling again… At 37% in 2006 and heading south, the U.S. figure compares to 52% in Germany, 43% in France, and 79% in Japan.

The other news you won’t often hear concerns the soaring tax revenues in the wake of the 2003 supply-side tax cuts. Tax collections have risen by $757 billion, among the largest revenue gushers in history. Receipts, especially from high-income individuals and corporations, have been growing for some two years at nearly twice the rate of spending, which explains the falling deficit.

That’s in spite of the Feds picking up most of the tab for defending the free world, reconstructing Iraq and Afghanistan, and paying for Katrina.

Meanwhile the other deficit exists because the US economy gives foreigners the best return on investments, so they’ve flocked to buy US assets. That’s quite stable because if enough foreigners like ABP start to sell their US assets, the dollar will tank taking their remaining assets with them, and wrecking economies (including that of the Dutch) that have export surpluses with the US.

One must have a heart of stone, etc etc.


The Brit debt as a percentage of GDP is officially 36.7% – about the same as the US. But that excludes £48 billion that’s been shifted off balance sheet, Enron style.


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