The Harmful Effects of America's Growing Trade and Budget Deicits
THE HARMFUL EFFECTS OF AMERICA'S GROWING TRADE AND BUDGET DEFICITS -- (House of Representatives - April 27, 2004)
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The SPEAKER pro tempore. Under the Speaker's announced policy of January 7, 2003, the gentlewoman from Ohio (Ms. Kaptur) is recognized for 60 minutes as the designee of the minority leader.
Ms. KAPTUR. Mr. Speaker, this evening I want to talk about the economy and America's way forward. How do we grow this economy in order that we create the wealth so that our families and our communities can become self-sustaining again, so our cities and our counties are not in debt and our States do not have to pass rising taxes on the citizenry of this Nation because the wealth production in their States is not sufficient to meet all the public needs that our citizenry is requesting?
I want to begin with an image. I am fortunate to represent a Great Lakes community that spans the entire southern rim of Lake Erie from Toledo, Ohio through Lorain County on the eastern end. I like to call it the emerald and sapphire district of Ohio, the crown jewels of Ohio. In this region of Ohio because of our work on the environment, we have seen the restoration of our American eagle population. It is a majestic bird. When I first was elected to this Congress we had about two nesting pairs of eagles and now we are over 100. I had the opportunity this weekend to observe some of these magnificent animals and to watch them fly over the lake and to think about America's heritage as an independent Nation. I stood there on the shore and I thought a long while.
I come here to the floor this evening because I have a deep concern that America indeed is losing her birthright as an independent nation, as a self-sustaining nation here at home and that we are becoming too wed, as our Founding Fathers warned us, to entangling alliances and relationships abroad that affect our ability to see clearly here at home.
I am not an isolationist by any means. I have worked more with foreign nations, almost more than I think any Member of this body. But I am concerned about the innards of this economy and it is as though those beautiful eagles that I watched this weekend had two lead weights on each claw, holding them down, not permitting them to fly and to reach their God-given potential.
I want to talk a little bit about that tonight. I want to talk about the trade deficit that is a huge drag on economic growth in our Nation and also our budget deficit and talk a little bit about what this Congress, Republicans and Democrats working together, and the next President of the United States are going to have to do in order that that eagle can fly again and that America can restore the independence that she is losing every day.
I have a chart here that shows the crisis we are in that started, oh, back in the mid-1970s, actually. It was not so bad back then because we still had large numbers of jobs in our country producing the kind of wealth that is necessary to lift family wealth and lift the national wealth. But with every succeeding year and every trade agreement that America signed, our trade deficit, the amount of imports coming in here versus what we export abroad, grew worse, until we are now at a level of half a trillion dollars more imports coming in here every year than our exports going out. With every billion dollars of trade deficit, we lose 20,000 more jobs. This hemorrhage has continued and has exponentially grown to a point where we almost wonder how do we get off this downward spiral.
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During this administration, we literally have had historic job losses totaling nearly 3 million more just in the manufacturing sector, and we see no clear plan on the part of this administration and the leaders of this Congress today to help reverse these trends so that America begins to export more than she imports. In fact, every year the situation has gotten worse. We look at where our trade deficits are growing. They are growing with China, they are growing with Japan, they are growing with Mexico, they are growing with India. In fact, with almost every country in the world, and that economic lifeblood that is being transferred from us elsewhere has not been replaced here at home.
The crisis in manufacturing is particularly bad, because manufacturing has long been the key to our economy, whether it was steel and metals or composite materials or automotive or rail cars. In the airline industry, we still have some marginal lead but international competition there, closed markets and managed market strategies are fast pushing our producers to the sidelines. Important industries like electricity, electrical parts, even light bulbs and lighting fixtures. We look at polymers, the automotive industry. So much of the productive abilities of this country have been off-shored. And we see no plan in the President's economic report to try to begin to reverse these trends.
Indeed, the jobs and so-called growth package that was passed here a couple of years ago had one major flaw, it did not require investment in this country. And so with the huge tax benefits going to certain investors on Wall Street, they have no obligation to invest those dollars here at home. In fact, there are many, many provisions in the Tax Code today that work against investment in this country. With no manufacturing jobs plan in place, this administration and the leaders of this Congress are working to provide more tax breaks for multinational corporations that ship our jobs abroad. That is hard to believe but it is going on. In fact, their plan includes a large loophole that allows foreign corporations to have foreign workers do most of the work to make a product and still reap a benefit from what is called domestic production in the Tax Code. It includes billions of dollars in new tax breaks for offshore operations of multinational corporations.
What are we doing? We may be making certain investors on Wall Street happy because they do not have to invest in the United States. Why do we not reward those small businesses, family businesses, businesses committed to this country, businesses that help support not just jobs but baseball teams in our hometowns? They go to the Rotary, they really form the basis for what we created in the 20th century, the greatest industrial Nation in the world. Rather, what we see happening by this administration is the lack of appointment of a manufacturing job czar for the majority of this first term. Then when they finally came up with somebody that they were going to put over there, an Assistant Commerce Secretary For Manufacturing, they picked someone whose name had to be withdrawn because, in fact, he had announced through his firm not building a major plant in America but building one in Beijing, China.
Why does someone not think about what should be done to move dollars toward investment here inside the United States of America? We take a look at the moves by the administration to reclassify jobs in fast food restaurants as manufacturing jobs. Since we cannot reverse these trends with the current economic program on the table, what they are doing is saying, well, if you have a service job and you work in a restaurant, we will classify that as a manufacturing job. It is not really going to change these numbers. America is not going to export more because of that decision. And so we have a real serious situation here where so much of our lifeblood, our national wealth is being drawn off and put in other places.
The other big lead weight on the independent eagle that I talked about, the eagle that should be independent, is the growing budget deficit. The economy really cannot take off when you have this kind of overhang of trade deficit but also the other deficit of the budget deficit. During the decade of the 1990s, we had finally moved America to a surplus budget position in every fiscal year. It took a long time to get there but through the decade of the 1990s, this Congress and then the Clinton administration actually did it. But now what has happened? We see both in the unified budget and the on-budget numbers as of August 2002, we had moved to $111 billion in deficit; in the on-budget deficit nearly $300 billion; and in 2003, the number got worse. This year, 2004, they anticipate over a half trillion dollars of deficit. You cannot have an economy grow and maintain this kind of lead weight inside. You say, well, Congresswoman, we could borrow. That is a good thing. My question is, but who are we borrowing from and to whom do we owe this interest? Folks, we do not owe it to ourselves anymore. Indeed, the largest exporter to us, China, is now the largest holder of the U.S. debt. Nearly half of the United States debt that is reaccumulating, we are now at a level of about $7 trillion, we have to borrow from others. Saudi Arabia is one of our biggest lenders.
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But there is a price, and the price is the interest that we pay those who lend to us.
What happened to the old system of postal savings stamps that we had during the Second World War? What happened to real U.S. savings bond drives? They have almost diminished to nothing as we have become more dependent on foreign borrowing.
Our American eagle cannot fly without a balanced budget and without balanced trade accounts. Those two lead weights are holding her down.
If you take a look what is happening, and this is an interesting chart, this just goes to show how quickly we moved from an annual surplus position, where our accounts were balanced, back in the late nineties. We came out of a huge deficit, and then we moved now into a huge deficit again. This is not what we should be giving to our children and grandchildren. We should be wiser than this.
The last chart I would like to show relates to prospects for the future as the per-barrel price of oil rises globally. One of the other drags that made it difficult for the eagle to fly is the increase in oil prices globally, because America is dependent. We are not independent in the use of energy inside this country. Two-thirds of what we use is imported, primarily oil, and those supplies are becoming more expensive, as every American knows when you go to the gas pump.
If you look at the current price of $31.39, and it is hovering a little bit over that now, unemployment always follows a rise in fuel prices. If we look historically, going back, you can go back to the early nineties when the per-barrel price was about $37 a barrel and you saw U.S. unemployment rise about half a year later.
The same thing happened every single time. Here is back in the late eighties. Oil prices then went up to $21.76 and unemployment ticked up to 7.5 percent. My point is, we now face rising prices at the pump. We know that means more unemployment down the road.
So the indicators are that we need to be thinking about how do we as Americans become energy independent here at home? Why should we let these dollars flow offshore? If we put those dollars in our own pocket and created new energy industries here in the United States of America, which our Tax Code could also incentivize, we could begin to move to new biofuels. Rather than $60 billion of our wealth going abroad to other countries, where prices are rising, we could be investing in ethanol, we could be investing in biodiesel; not just a little pittance, but major national programs.
We could be investing in photovoltaics, capturing the energy of the sun. NASA and the Department of Energy have wonderful technologies. All of the incentives we had in the Tax Code back in the eighties in order to further the development of those were removed as America became more and more beholden to foreign fuel. We need to think hard about how to help that eagle fly again.
Energy independence is not a tangential issue, it is fundamental to this economy recovering. I was thus disappointed to read, and I will include this article for the Record, that the Chairman of the Federal Reserve, Alan Greenspan, said that because America has been experiencing this rise in prices, we have to begin importing more natural gas. He did not say we need to create more jobs here at home through the investment in energy technologies in the United States of America.
Quoting the Washington Post, it said, "Greenspan said a dramatic rise in the recent years in the price of both oil and gas for delivery six years into the future was almost certain to have an impact on the U.S. economy." So he is admitting that the job situation is not going to get better, that this will be a drag on economic growth.
But then he said the impact was likely to be greater for users of natural gas, because they had no global supply to cushion price increases. He said, "If North American gas markets are to function with the flexibility exhibited by oil," but what flexibility, Mr. Greenspan? We are totally dependent. Saudi Arabia tells us what to do, the OPEC nations tell us what to do. Our eagle cannot fly. She is not independent any more. But he says, "more extensive access to the vast world reserves of gas is required."
I disagree. I think we need an administration in place that will make America energy independent in less than 10 years. We have the ability to do it. Right now, we have over $100 billion in oil subsidies largely going to multinational corporations operating far afield from North America. Why do we not turn some of those dollars back to investments here at home?
Does any person not believe that if those dollars were brought back here and repatriated, we would not have a vast booming new industry across rural America, across Sun Valley, across Energy Valley, USA, our coal reserves that run from Pennsylvania all the way through Illinois?
Do you mean to tell me we cannot figure this out, that we cannot figure out how to make clean fuels in the United States? No, we just became wed to a system that can no longer last. Let somebody else take those oil reserves. The eagle cannot fly, because we are totally dependent on somebody else.
So my message this evening is that for America's economy to grow, we need a different set of leaders in this country.
We need a set of leaders that will balance America's trade accounts; that will help us export products again, not
American jobs; who will amend our trade agreements, whether it is NAFTA, whether it is our agreements with China, so that we begin to have balanced trade; so where markets are closed, we had best open them, or America will remain the dump market of the world. We need to have trade agreements that allow us to create jobs in this country again, not move our jobs offshore. We need balanced trade accounts.
Number two, we need to balance the budget. We cannot continue to borrow from foreign interests to move this economy forward, because you have to pay the piper at the end of the road, and that piper is no longer U.S. savings bond holders in this country. That piper is now foreign interests. We are paying hundreds of billions of dollars every year to those very interests, and over half of our deficit is now financed by them. That eagle cannot fly. We have to become self-financing here at home.
Thirdly, in terms of energy, it is the major drag on this economy. We need here in Washington leaders who will commit to making America energy independent again, investing in photovoltaics, investing in hydrogen, investing in biofuels, biodiesel, ethanol and new fuels off our farms and fields that we have not even dreamed about yet. We need fuel cells. We need in the coal belt clean coal, far beyond what people have invented in the past. This is all within America's capability.
I once read an expression that the greatest room in the world was room for improvement, and that the greatest force in the world is inertia. I hope that in this presidential year we will get to the point where, rather than cutting one another up, the candidates will stand up there in front of the American people and say this is what we intend to do in our first 100 days, this is what we intend to do in the first 6 months and the first year to get this economy moving again.
Every American should vote for the candidate, for this body, for the presidency, for the other body, who has the best ideas, because, Mr. Speaker, that eagle, she cannot make it alone. We have to help her. Right now, the burden is too heavy, and this economy cannot take leaps forward without greater vision and greater commitment by the top leaders of this country.
Mr. Speaker, I include for the record the two articles I referenced this evening.
U.S. Deficit, Rates Could Hurt Globally
Uncontrolled U.S. budget deficits would pose a serious threat to global prosperity in the coming years as rising interest rates depress economic growth in the United States and around the world, the International Monetary Fund warned yesterday.
The IMF released an analysis that predicted if nothing is done to get control of the soaring U.S. deficits, it would shave global economic output by 4.2 percent by 2020 and reduce U.S. economic growth by 3.7 percent during the same period.
IMF economists said much of the adverse impact would occur because of increased borrowing demands in the United States to finance the budget deficit. This would drive up U.S. interest rates and interest rates in other countries as the global supply of available capital is reduced, they said.
"The rest of the world is affected seriously by the U.S. fiscal deficit," IMF chief economist Raghuram Rajan told reporters.
The IMF's forecast that the U.S. budget deficit will be a significant drag on growth reflected what will occur if there is no improvement in the deficit, which the Bush administration projects will hit $521 billion this year, a record in dollar terms, and show little improvement in coming years.
President Bush submitted a budget to Congress this year that projects that he will be able to cut the deficit in half over the next five years, reducing it to a shortfall of $237 billion in 2009.
The IMF said if Mr. Bush is able to accomplish such a reduction in the budget deficit, it would significantly lower, but
not eliminate the adverse effects from the deficit on U.S. and global economies.
It saw a long-run impact from such a budget reduction as reducing global economic output by 2.55 percent, compared with a reduction of 4.2 percent under the worst-case scenario in which the deficit remains at the current record levels.
Under the Bush program to reduce the deficit, U.S. economic growth will be depressed by 1.88 percent in the long term, compared with 3.68 percent under the more adverse deficit path.
However, the IMF said if the United States decided to pursue more rapid deficit reduction, the adverse drag on growth would be greatly reduced to 1.03 percent in the long term in the United States and 1.47 percent worldwide.
"It would be good if there were stronger measures put in place to contain the deficit and that is what we are looking for," Mr. Rajan said.
The IMF analysis of the economic impact of the U.S. budget deficits represented the latest in a series of reports in which the 184-nation international lending agency has urged stronger measures to get control of the deficit.
The IMF report conceded that the U.S. deficit, which reflected in part the impact of Mr. Bush's tax cuts, was useful in helping the United States and the global economy recover from the adverse effects of a number of shocks such as the 2001 recession, the terrorist attacks and the bursting of the stock market bubble.
Interest rates have yet to show significant increases in spite of the large budget deficits.
But the IMF said it was only a matter of time before rates did start to rise, reflecting an improving economy, increased demand for credit by businesses and actions by the Federal Reserve to start raising interest rates to keep inflation under control.
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[From the Washington Post, Apr. 27, 2004]
Greenspan: Energy Prices Threaten U.S. Economy
(By Martin Crutsinger)
WASHINGTON.-The United States needs to expand the global trade in natural gas as a way to prevent future sharp price increases from harming its economy, Federal Reserve Chairman Alan Greenspan said Tuesday.
Greenspan said a dramatic rise in recent years in the price of both oil and gas for delivery six years into the future was almost certain to have an impact on the U.S. economy.
But he said the impact was likely to be greater for users of natural gas because they had no global supply to cushion price increases.
"If North American gas markets are to function with the flexibility exhibited by oil, more extensive access to the vast world reserves of gas is required," Greenspan said in remarks to an energy conference sponsored by the Center for Strategic and International Studies.
Greenspan said imports of liquefied natural gas accounted for only 2 percent of the U.S. market last year in part because environmental and safety concerns have limited the number of U.S. ports with facilities to handle liquefied natural gas, or LNG, shipments.
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But he said that situation could be changing.
"Given notable cost reductions for both liquefaction and transportation of LNG, significant global trade is developing," he said. "And high natural gas prices projected by distant futures prices have made imported gas a more attractive option for us."
Greenspan said the fact that worldwide imports account for 57 percent of global oil consumption but only 23 percent of natural gas consumption showed the growth potential for trade in natural gas.
Greenspan said the price of energy contracts for delivery six years into the future and taken a sharp jump upward over the past four years after a decade of "tranquility."
He noted that the price of oil for delivery in six years fell from $20 per barrel just before the first Gulf War to $16 to $19 per barrel in 1999.
Distant futures contracts for natural gas were less than $2 per 1,000 cubic feet of natural gas at the time of the first Gulf War and had risen only slightly to $2.50 per 1,000 cubic feet by 1999.
But currently, distant futures contracts for oil have risen to more than $27 per barrel while the price increase for natural gas has been even more noticeable, rising from $3.20 per 1,000 cubic feet in 2001 to almost $5 currently.
While Greenspan said the rise in oil prices apparently reflected increased fears about supply disruptions in a more unstable Middle East, he attributed the increase in natural gas prices to the fact that there is more limited global trade in natural gas.
"Natural gas pricing ..... is inherently far more volatile than oil, doubtless reflecting, in part, less-developed, price-damping global trade," he said.
To deal with these price pressures, Greenspan called for more access to global supplies through a major expansion of liquefied natural gas terminal facilities and the development of newer technology that allows the liquefied natural gas to be turned back into a gas at offshore facilities.
"As the technology of LNG liquefaction and shipping has improved and as safety considerations have lessened, a major expansion of U.S. import capability appears to be under way," Greenspan said.
He said these developments offered great promise of boosting the availability of natural gas in the long term. But he cautioned that since it will take years to put the new facilities into operation, the near-term outlook for natural gas prices would likely remain "challenging."
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