HONG KONG -- Recent news about U.S. current-account deficits with the rest of the world gives grim pause for thought from Beijing and Tokyo to London, and especially in Washington, for it shows the United States approaching the financial equivalent of a nuclear meltdown.
The U.S. trade deficit reached a record $725 billion in 2005, thanks to rising oil prices and the growing influx of imports from China. The deficit with China alone was $202 billion. What should be scary for Americans is that the value of imports was almost 60 percent more than that of exports and that the trade deficit was 5.8 percent of national income. The overall current account deficit, a more comprehensive measure of financial flows, was larger still at a whopping 6.5 percent of U.S. national income.
Meanwhile, new estimates of the budget deficit showed the government going deeper into hock, thanks to the swelling costs of the war in Iraq. The budget deficit is likely to reach $400 billion, up from the $340 billion previously forecast.