*NEWS*U.S. TRADE GAP EXPANDS TO $48.5 BIL

[Anonymous]

US trade gap expands to $58.4bn

The gap between US imports and exports has widened to the
second-highest level on record as US shoppers continued to buy goods from
overseas.

The trade deficit in January was $58.3bn (£30.2bn) well above December’s
$56.4bn and higher than forecast.

The news put added pressure on the weakened dollar, as the euro traded up at
$1.3463 from $1.3424 on Thursday.

Investors remain concerned that the widening trade gap, as well as the budget
deficit, threaten future growth.

Bank worries

The trade deficit makes up much of the red ink in the US’s current account,
the measure of the divergence between the US’s incomings and outgoings.

Both the current account and budget deficits – the latter currently close to
$500bn – are funded largely by the purchase of dollar-denominated debt by
foreign central banks.

The inflow of about $2bn a day, estimated by some economists to be about 80%
of the world’s excess savings, also keeps the dollar from sliding further and
faster.

Asian governments have been buying the dollar in part to keep their own
currencies from appreciating too fast.

But several are now indicating that with the dollar’s decline of 50% in the
past three years, they may need to diversify.

On Thursday, just such hints from Japan’s prime minister – later denied by
the Ministry of Finance – triggered a fall in the dollar, as did similar words
from South Korea a month earlier.

And on Friday a report from Lehman Brothers indicated that in China, second
only to Japan in its purchase of US debt, dollar-denominated debt had fallen to
76% of the country’s foreign currency reserves by late 2004, from 82% a year
earlier.

Greenspan soothes

Not everyone is as worried about the current account deficit, however.

Federal Reserve chairman Alan Greenspan used a speech to the Council on
Foreign Relations think-tank in Washington DC on Thursday to stress that the
falling dollar would help it diminish naturally, as would globalisation and free
trade.

“The resolution of our current account deficit… does not strike me as
overly worrisome,” he said.

“But that is certainly not the case for our fiscal deficit.”

Mr Greenspan backed President George W Bush’s mammoth first-term tax cuts,
which many critics suggest are responsible for the rapid growth of the budget
deficit to some $500bn.

He has repeatedly called for budget cuts to ease the strain on the public
purse.

[Author]

March 13, 2005 at 10:12 AM