The United States trade deficit is threatening to upend globalization as we’ve known it. The rise in the price of oil has been leading to a similar result: an international trading system in which there is much less trading. Now, that may actually be a good thing, in the long-run, but in the case of the United States it might happen in a very chaotic way.

This problem that has been accelerating since George W. Bush took office: The United States has been buying many more goods than it has been selling. As I hope to explain, eventually this will lead to a sharp fall in the value of the dollar, which will lead to a sharp fall in our standard of living.

If we have any hope of transforming our economy from one that is dependent on greenhouse gas-spewing fossil fuels, industrial agriculture, and inefficient transportation systems, then we will have to embark on a truly gargantuan building program in order to construct all of the wind turbines, solar panels, high-speed rail, light rail, electric cars, organic farms, and energy self-sufficient buildings that we can. In order to do that however, we have to be wealthy. At the rate we’re going, we won’t be, and poor nations can’t import lots of good stuff from abroad.

Allow me explain why buying too much and selling too little could have such devastating effects:

Nations eventually get into big trouble when they import from other countries too much, and they sell too little. When this imbalance occurs, it’s called a trade deficit. The U.S. trade deficit has been getting bigger and bigger for many years now. Last year it actually improved to $711 billion. Even though we exported $1,148 billion worth of goods and $479 billion worth of services, we imported $1,966 billion worth of goods (including $331 billion in oil) and $372 billion worth of services (all figures from the Bureau of Economic Analysis [PDF], part of the Department of Commerce). Since the total of all goods and services produced in the U.S. (GDP) in 2007 was $13,807.5 billion, that means that the trade deficit was equal to 5.1 percent of GDP.

So, what’s wrong with that? The problem is that the people selling us all of that stuff have $711 billion that they’re stuck with. What do they do with the dollars? This has been going on for a while, so that there are now about $6,500 billion floating around the world because of our trade deficits.

Full Story: http://gristmill.grist.org/story/2008/8/18/181049/080?source=daily