Economic Trends of Global Markets Essay Example | Topics and Well Written Essays - 1000 words

Economic Trends of Global Markets - Essay Example Lastly, major disruption in global energy supplies that â€Å"could be driven by conflict among key energy-producing states, sustained internal instability in two or more major energy-producing states, or major terrorist actions† (15). Why is the United States currently experiencing a major trade deficit? In March 2006, Robert Scott reported that the United States’ major trade deficit was caused by â€Å"rapid growth in the deficit on goods and services trade and large increase in unilateral transfers, which were temporarily reduced by payments from foreign insurers for losses caused by hurricanes Katrina and Rita in the third quarter.† Two-thirds of the increase in U.S. deficit was largely attributed to the rapidly rising oil prices and imports according to Scott. In addition, he also cited the rapid growth of interest payments to foreign holders of U.S. Treasury securities. Foreign holdings of these securities, whose interest rates are expected to rise as well, have increased by $ 108 billion in the last quarter of 2005 alone. Scott estimated that foreign borrowings made up for more than 80% of the federal debt increase. With the Asian governments’ bullish promotion of its export-led growth at the backdrop, Scott pointed that the 11% decline in the U.S. dollar’s value since the second quarter of 2002 was insufficient to slow the trade deficit’s growth. He added that â€Å"the dollar must fall by at least 30% to 40%† for the deficit to reach a sustainable level of less than 3% of the U.S. GDP. This would reduce export prices and achieve the needed increase in exports relative to imports. This scenario will likewise push up the prices of imports in the U.S. resulting to import reduction and a shift in demand favorable to U.S. products. Why are some observers optimistic about the long-term trade position of the United State