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The trade deficit: a true measure of national productivity

Our weekly commentaries provide Euro Pacific Capital's latest thinking on developments in the global marketplace. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital.
Peter Schiff
Tuesday, November 19, 2002
The only thing more amazing than today's release of yet another in an uninterrupted string of horrendous monthly merchandise trade deficits is the lack of attention such deficits receive in the media. Most of today's attention is on the routine release of supposedly benign monthly pro forma CPI data. Big deal!! The balance of payments is the single most important economic statistic baring on the overall health of an economy. America's enormous balance of payments deficit reveals an economy that is fundamentally sick. Many incorrectly blame the worsening of the trade balance on weakening foreign demand. However this is not the case. The fault lies not with our trading partners but with ourselves. It is not lack of foreign demand, but rather a lack of domestic supply, that is the problem. American's non-completive, unproductive, mal-invested economy is simply incapable of supplying the goods that our trading partners demand. In is only a matter of time before those partners refuse to accept our IOU's (financial assets) in exchange for their products and demand payment in real goods. When that inevitable day arrives, the dollar will collapse, interest rates and consumer prices will soar, and Americans will no longer be able to lay claim on the productive output and scarce savings of the rest of the world. Finally Americans will be forced to live within the limited means that a de-industrialized, savings short, economy can provide.

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Investing in foreign securities involves risks, such as currency fluctuation, political risk, economic changes, and market risks. Precious metals and commodities in general are volatile, speculative, and high-risk investments. As with all investments, an investor should carefully consider his investment objectives and risk tolerance as well as any fees and/or expenses associated with such an investment before investing. International investing may not be suitable for all investors.

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Our investment strategies are based partially on Peter Schiff's personal economic forecasts which may not occur. His views are outside of the mainstream of current economic thought. Investors should carefully consider these facts before implementing our strategy.