Jun 13, 2006- Red Ink Continues to Pile Up

HON. MARCY KAPTUR
 OF OHIO
IN THE HOUSE OF REPRESENTATIVES
TUESDAY, JUNE 13, 2006

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 Ms. KAPTUR. Mr. Speaker, the red ink continuesto pile up, both in our budget deficit and in America's trade deficit. TheCommerce Department reported on Friday that the trade deficit is rising again,pushed up by oil prices and a flood of more imports from China. With oilimports over $70 a barrel, we know this trade deficit is going to swell as theyear proceeds. The Commerce Department reported that the gap between what theUnited States sells abroad and what it imports rose to $63.4 billion in April,2.5 percent higher than the March imbalance of $61.9 billion. We know that thetrade deficit in both February and March just fell a tad, but it had hit anall-time high this January of $66.2 billion. And while economists noted thatthe April deficit was smaller than the $65 billion that had been expected, itis still the sixth largest trade deficit on record.

This is a chart that takes a look at what has been happening ever since thisCongress unfortunately passed NAFTA back in the early 1990s, followed bypermanent normal trade relations with China, and what could be normalabout that? Every single year the red ink gets deeper.

Through the first 4 months of this year, the trade deficit is running 1.9percent above the same period a year ago putting our country on trackto run up a record deficit again for a fifth straight year. Last year'sdeficit, as this chart indicates, was three-quarters of $1 trillion,three-quarters of $1 trillion.

To cover this red ink, we have to borrow. We have to import capital tooffset what we are not exporting in goods. America is in uncharted waters. Wehave never, ever experienced this situation before. Some people have commentedthat our country is handing over $2 billion a day to foreigners to cover thistrade gap. The increase in the April trade deficit reflected a .7 percent risein imports which climbed to $179.1 billion, the second highest level on record.In other words, the trend is in the wrong direction.

In addition to higher oil bills, imports of autos and auto parts were up andshipments of consumer goods from China such as furniture,televisions, video recorders and toys all rose. More imports coming in, fewerimports going out. Major U.S. companies like La-Z-Boy are having trouble in themarket, because products are coming in from China where workers make pennies aday.

We have lost our entire television industry. Not a single television is madein this country any more. Companies in the automotive parts industry like Delphi are trying to struggle to hang on.

We are living through the hollowing out of our country. We are propping upthis loss of real wealth and production capacity with borrowed capital. We arein uncharted waters. Americahas never been here before.

The markets are reflecting it. Today, in the New York Times, major headline:Broad economic worries drive global sell-off. What is happening is there arehuge drops in the market. Standard & Poor 500 stock index fell 1.3 percent,erasing all of its gains for this year and closing at its lowest level sinceNovember. The NASDAQ fell more than 2 percent and the Dow Jones IndustrialAverage fell almost 1 percent. Damage was far worse in markets around theworld.

American manufacturers claim, well, you know, the problem is just with China thattheir currency is undervalued by as much as 40 percent. But I can remember whenthey said that to me about Japan16 years ago. Marcy, when the yen-dollar relationship comes intobalance, we will have a trade surplus with Japan. No, no.

No trade surplus with Japanbecause they still have a closed market, and we act like they don't. So we taketheir products, but they don't take our products. So Japan has now become our largestfinancer, and every day we pay them interest on their greater and greater loansto us.

Mr. Speaker, Americacannot continue on this course. In fact, analysts are saying the deficit willset an even higher record this year, probably close to $1 trillion, if we keepgoing at the rate that we are going today. The deficit with Japan rose by2.8 percent in April to $7.8 billion.

The deficit with Canadarose 16.3 percent to $6.1 billion in April, while our imbalances with Mexico, with Korea, well, gosh, with about everyother country in the whole world, just kept going up. The sad thing for ourcountry is it looks like this year will be the first year in our history wewill import more agricultural goods than we export. This is not the America weshould be leaving to our children and grandchildren.

Let's elect people to this Congress and to this Presidency who will put America'sfinancial house in order and make us independent again.

[From the New YorkTimes, June 13, 2006]

Broad Economic Worries Drive a Global Sell-Off

(By Vikas Bajaj andJeremy W. Peters)

Fears about higher interest rates, rising inflation and a slowing economysent stocks sharply and broadly lower yesterday, with emerging markets takingthe biggest hit.

In the United States,the Standard & Poor's 500-stock index fell 1.3 percent, erasing all of itsgains for the year and closing at its lowest level since November. The Nasdaqfell more than 2 percent and the Dow Jones industrial average fell almost 1percent.

But the damage was far worse in some other parts of the world. Trading atthe Colombian stock exchange was briefly halted after its benchmark index fellmore than 10 percent. Mexico'sbenchmark stock index fell 4.3 percent, its biggest one-day decline in morethan 3 years. Markets in India,Brazil and Hungary alsotumbled.

Emerging markets had enjoyed a strong surge in recent years because lowinterest-rate policies around the world pumped cheap money into the globaleconomy, analysts said.

``Global liquidity has helped drive a lot of these risky assets,'' saidLarry Adam, chief investment strategist at Deutsche Bank Alex Brown. ``And nowyou are seeing this flight to quality,'' including cash and investments indeveloped countries, he said.

At first glance, stocks in the United Statesand Western Europe do not appear to havebenefited from the emerging-market retreat, but money coming out of emergingmarkets may be helping to cushion the blow, Mr. Adam said.

Yesterday's sell-off started early and gathered pace throughout the day.Some analysts suggested that a major catalyst was a speech by the president ofthe Federal Reserve Bank of Cleveland, Sandra Pianalto, in which she said thatinflation was higher than her ``comfort level.''

Ms. Pianalto was the latest Fed official to express concerns about inflationin the last several days, a drumbeat that many investors think is anot-so-subtle message that the central bank will raise short-term interestrates, now at 5 percent, at its next meeting on June 29. Earlier, the Fed hadindicated that it might pause in its two-year campaign of raising rates.

The Fed is ``adding to a little of this hysteria that is building,'' saidJames W. Paulsen, chief investment strategist at Wells Capital Management.

To be sure, Ms. Pianalto, who is one of the 11 officials who vote on Fed'sinterest rate policies, said that inflation, though worrisome, was not anominous threat to the economy.

``Measures of long-term inflation expectations have been mixed lately, but,on the whole, I regard them as remaining contained,'' she said to a gatheringof the Broadcast Cable Financial Management Association in Florida. The challenge of Fed policy makers,she said, ``is to make sure that they stay contained.''

The government will issue reports on wholesale and consumer inflation todayand Wednesday. Excluding energy and food prices, economists expect both theproducer price and consumer price indexes to have risen 0.2 percent in May, arate considered to be modest by most experts.

The biggest loser yesterday, as in the last few weeks, was the technologyindustry. Many large technology companies, struggling to match past growth asthey mature, have been lowering their profit projections.

For the second quarter, the technology area's profits are expected to tofall 2 percent from the same period last year while the overall increase in theS.& P. 500 is expected to be 10 percent, noted Howard Silverblatt, seniorindex analyst at Standard & Poor's. ``This is supposed to be a growthindustry,'' he said.

The Nasdaq was led downward by Qualcomm, the maker of wireless technology,which fell 5 percent yesterday after it filed a complaint against its rivalNokia as part of a lengthy patent fight.

Shares of Apple fell almost 4 percent, apparently reflecting investors'concerns about efforts by some European countries to force the company to openup its music software to devices other than the iPod.

One of the few exceptions to yesterday's broad sell-off was General Motors,which rose 43 cents, or 1.7 percent, to $25.78. It was the Dow's biggestgainer. The shares moved higher as the president of the United AutomobileWorkers, the company's biggest union, told members that the union would have torethink its traditional positions to ensure the domestic automobile industry'ssurvival.

The stock also appeared to be reflecting investors reaction to news of anagreement late Friday that could avert a costly strike at G.M.'s largestsupplier, Delphi.

Many market experts remain convinced that the recent correction in stockprices will prove temporary and will be contained to a few areas. They notethat inflation, though rising, remains low by historical standards.

But the market's volatility has intensified and will probably remain high,analysts say.

``It is a retrenchment,'' Mr. Silverblatt said. But ``companies are still ingood shape.''

The Dow fell 99.34 points, to close at 10,792.58, its lowest level sinceFeb. 7. The S & P 500 declined 15.90 points, to 1,236.40. The Nasdaq fell43.74 points, to 2,091.32. The Russell 2000 stock index ofsmaller-capitalization companies, fell 18.2 points, or 2.6 percent, to 683.19.Declining issues led advancing stocks by 3 1/2 to 1 on the New York StockExchange.

Treasuries fell slightly. The price of the benchmark 10-year note fell\1/32\, to \1014/32\. The yield, which moves in the opposite direction of theprice, rose to 4.98 percent, from 4.97 on Friday.