Recent statistics released by the OECD confirm what we have long known: Euro Area unemployment runs about twice that of the United States. Projections released by the OECD on 07-Feb-2006 show that this trend is expected to continue through 2007:

	US Unemployment Compared to Europe

The Wall Street Journal, in an editorial on 08-Feb-2006 (”The European Disease”), citing the same OECD report, said that the rate of GDP growth per capita for Germany, France, and Italy is falling, relative to the U.S., and that Jean-Phillippe Cotis, chief economist at the OECD said that at this rate, in twenty years, the average U.S. citizen would be twice as rich as a Frenchman or German.

So, what does this have to do with the price of U.S. bonds?

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The U.S. Department of Commerce estimates the U.S. trade deficit for October 2004 to be $55.5 billion, up 10% over the trade deficit of $50.9 billion in September and the monthly average deficit of $50.1 billion in Q2 2004.

This deficit reflects the position of the U.S. dollar as the world’s premier trading currency and is good news for U.S. consumers and exporters in Latin America and Asia. Since the U.S. dollar is the leading international trading currency, the trade deficit reflects globalization and the rise of a dollar world economy.

(See: The Trade Deficit and Dollarization )

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The U.S. trade deficit has become essential in financing spending of the U.S. government and American consumers.

This critical source of funds depends upon continuity of international acceptance of the dollar as the preferred means of payment in international trade. Since 2002, the U.S. currency has fallen against the euro, causing worries that the “dollar franchise ” may be weakening.

The matter is important because if the trade deficit were to go away, dollar interest rates would rise sharply, there would be a “credit crunch”, unemployment would probably increase, and many goods on which American life styles depend would be in short supply and expensive. Therefore, the question is “How long can Americans count on the trade deficit?“

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