The US trade deficit widened to an all time record of $764bn last year, despite the falling value of the dollar on world markets. Meanwhile, data from the Office for National Statistics documented the worst year for the UK trade deficit since figures for imports and exports were first collected in 1697. Britain was just under £56bn in the red in 2006. It would have been a lot worse, but for the hugely profitable money-laundering activities they call financial services that go on in the City of London. Both deficits arise because imports are rising faster than exports – but imports and exports are rising as the pressure from global corporations for increased production and consumption intensifies.
So what is going on behind these figures? American and UK consumers like consumers everywhere are subjected to marketing campaigns and persuaded to spend like there’s no tomorrow. In doing so, they incur record-breaking debt, buying into credit deals and fake extended guarantees tied to ever-cheaper goods made in low-wage China. In the UK, with ever more liberal credit terms, personal debt breached £1 ¼ trillion in 2006 of which more than £1 trillion (£1,000 billion) is tied up in mortgages on massively overvalued property. Meanwhile in the US there is carnage in the housing market as prices fall, and interest rates increase, driving lenders out of business and hundreds of thousands of borrowers over the edge into bankruptcy. It’s a warning of what’s on the cards in Britain. The trade deficits and the mounting debt provide a measure of the inflation which is building up in the global economy, outstripping the attempts to control it by creeping increases in the base interest rates set by the US Federal Reserve, the Bank of England and the European Central Bank.
The US Democrats have noticed there’s a fundamental problem with these trade imbalances. In a letter they sent to President Bush they say that the "consequences of these persistent and massive trade deficits include not only failed businesses, displaced workers, lower real wages, and rising inequality, but also permanent devastation of our communities". But what the Democrats don’t see and can’t see is that these consequences don’t arise from the deficits themselves but from the global economic and social system which depends on them for its continued growth. Capitalism needs growth to sustain profits. If growth is stifled for any reason, profits fall. Any time now, the pent-up inflationary pressures that the deficits and debt contain will explode. And you only have to look at Zimbabwe’s eye-popping 1,600% annual inflation rate to get a flavour of what is to come. Prices there are expected soon to begin rising on an hourly basis. It is surely time to dismantle this failed system and start to take the profit-fuelled planetary emergency seriously.
Gerry Gold, economics editor