Net Exports as a % of GDP

(Keep in mind: exports are real costs; imports real benefits.)

Since January 2005 net exports (while still negative) have gone up by about 1.55% of GDP through 2007 year end, and so far have continued higher in Q1 2008.

In Q1 2005 the general environment was that of a 3% GDP growth rate while today it is at best about 1%.

That means for the economy as a whole, we ‘feel’ a total loss of ‘average domestic consumption/investment’ of over 3.5% of GDP.

That’s why to many economists it ‘feels’ like a recession even though real GDP remains somewhat positive.

We are experiencing a rapid deterioration of what’s called our ‘real terms of trade’.

That means even though we might work just as hard and produce just as much, we get to consume less while we export more.

How far can this go?

It is all a function of how many USD financial assets the rest of the world desires to accumulate.

If that number is zero (meaning they don’t want to add to their multiple trillions of USD financial assets they already have), US net exports will go to zero.

And we will feel worse by another 4% of GDP, all else equal.

And our policy makers think this is a good thing.

In the last round of Congressional hearings Bernanke testified that he’d like to see less domestic consumption and more exports and investment.

Looks good, feels bad.