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ECONOMIC ANALYSIS:

Thinking About U.S. Fiscal Records

by FRED CEDERHOLM
How much of the “record” dollar figures in May 2006 are due to actual increases in the products consumed by US/us, and how much are due to the continued erosion in the purchasing power of the US dollar?
I’ve been thinking about records. Actually I’ve been thinking about our exports/imports, our trade deficits, our petroleum usage/dependency, the dollar, marginal utility, and the national debt. Americans love to break records. Throughout our history we (as a nation) have sought to be the biggest, the fastest, the richest, the most successful, and the best at whatever we chose to tackle. We set the standards for the world. THAT was our then, but THIS is our now. When you are being led in the wrong directions, more of the same-old same-old is not a good thing.

You see, on July 12th, the US Census Bureau released the foreign trade statistics for the month of May 2006. On July 28 the Energy Information Administration of the Department of Energy released the figures for our petroleum and crude oil imports for May 2006 as well--giving additional flesh and meaning to the earlier (total) trade numbers. The MONTHLY trade deficit for May 2006 was $63.8 billion, for May 2005 it was $60.7 billion, for May 2004 it was $51.8 billion, for May 2003 it was $44.3 billion, for May 2002 it was $38.2 billion, and for May 2001 it was $ 31.4 billion. See any trends here?

While our exports of goods and services in May 2006 increased by $2.7 billion over April, our imports of goods and services increased by $3.2 billion over the prior month.
The May 2006 numbers contain a number of record highs. While our exports of goods and services increased by $2.7 billion over April 2006, our imports of goods and services increased by $3.2 billion over the prior month. Total exports of $118.7 billion and total imports of $182.5 billion were records. Our May deficit with China was $17.1 billion, with Japan was $7.1 billion, with Canada was $5.8 billion, with Mexico was $5.5 billion, with Germany was $4.0 billion, with Nigeria was $2.7 billion, with Venezuela was $2.5 billion, with Saudi Arabia was $2.4 billion, with Ireland was $2.1 billion, and with Russia was $1.9 billion. Note: not all of these were monthly records!

The May deficits with OPEC were records. The May import “value” of crude (at $20.0 billion) was a record. The May import “value” of total petroleum products (at $ 27.9 billion) was a record. The May average import price per barrel of crude (at $61.74) was a record. The April to May 2006 increase in the average price per barrel of crude oil (of $4.92) was the largest month-to-month increase since the jump of $6.06 per barrel from August to September of 1990. Think about what was happening in the Middle East back then... and fast forward to what is going on the Middle East right now--some 16 years later. Interesting!

We are more dependent on foreign oil than ever before--with only a slightly different percentage mix of the recent suppliers. In May 2006 our domestic production of crude was 158.1 MILLION Barrels per MONTH. You must return to May of 1952--54 years ago (when 157.7 MILLION Barrels per MONTH was produced)--to find a May with a lower production of domestic crude oil. The top seven sources of Uncle $ugar’s crude oil imports for May 2006 were: Canada (1.868 million barrels per DAY--MBPD), Mexico (1.576 MBPD), Saudi Arabia (1.457 MBPD), Venezuela (1.169 MBPD), Nigeria (1.075 MBPD), Iraq (0.666 MBPD), and Angola (0.379 MBPD). Uncle $ugar’s top seven sources of total petroleum imports for May 2006 were: Canada (2,313 MILLION barrels per DAY--MBPD), Mexico (1.710 MBPD) Saudi Arabia (1.492 MBPD), Venezuela (1.470 MBPD), Nigeria (1.189 MBPD), Iraq (0.666) MBPD) (Still no functioning refineries in Iraq? Hmmm...), and Algeria (0.643 MBPD).

When you are a foreign entity and are already “sitting on” mega-billions of bucks as a reserve currency--just what is the marginal utility of your acquiring billions more? Do you expect a premium--or...a discounted valuation?
How much of these “record” dollar figures are due to actual increases in the products consumed by US/us, and how much are due to the continued erosion in the purchasing power of the US dollar? I wish I had an answer for you on this one. The dollar has clearly lost ground relative to other world currencies and will continue to do so. When you are a foreign entity and are already “sitting on” mega-billions of bucks as a reserve currency--the cumulative result of this grotesquely mismanaged trade imbalance--just what is the marginal utility of your acquiring billions more? Do you expect a premium – or...a discounted valuation?

Back at the ranch--I mean... back at the U.S. Treasury--Uncle $ugar’s National Debt continues to grow separate from, yet in sync with, the above-described trading deficits. Every second of every minute of every hour of every day of every month, our National Debt sets a new record high.

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
Copyright 2006 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.



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This story was published on August 2, 2006.