us market, how will this effect interest rates

The big news is that the US current account deficit rose to a new record - its ninth record high in ten years. The number for last year was $804 billion. The number for the last quarter of last year was $224 billion, which shows the trend is still upwards.At the current rate, the US current account deficit will hit $1 trillion within a year or two. It is already at 7% of GDP - a figure that would normally only be seen in a banana republic or an empire going bananas."A ticking time bomb," a Canadian economist calls the deficit. The US needs $2.5 billion dollars every day just to cover its borrowing needs. Already, China has lent the world's most prosperous nation so much money it has nearly $1 trillion worth of US government debt in its vaults. If the debtor is slave to the lender, as it tells us in the Bible, what does that make Americans? They'd rather not think about it. Besides, they have economists willing to delude them. And politicians able to defraud them."US tells China to cut its trade surplus," reads a headline in the FT.We wondered where was the equal and opposite headline: "China tells US to cut its trade deficit." But we could find it nowhere.We wondered, too, what big stick the US carried in its hand. What was it going to do...threaten to stop borrowing? Brandish a credit card? How would it fund its war on terror? Its consumer economy? Its housing bubble? America can speak loudly - for the benefit of American voters, we presume - but it has a limp noodle in its hands. The Chinese are the ones holding the big stick; they could dump their US debt holdings and clobber the American economy any time they wanted. But wait. Aren't American companies extremely profitable? And aren't they setting up plants overseas...buying overseas companies...and making deals to leverage their technology, their brands and their know-how on the world markets? Yes, of course they are. But that, too, is reflected in the current account numbers.In the 4th quarter of last year, for example, foreigners actually earned more from their US holdings than Americans earned from their holdings overseas - $132.6 billion compared to $129 billion. And even in the technology sector, where the US is supposed to have a commanding lead, Americans bought more from foreigners than they sold to them.Always grinding away, our General Theory of Grinding tells us that history never stops. She is the mistress of creative destruction, constantly turning things upside down and inside out...always undermining great empires...and eating away at great companies...she grinds men's pathetic little conceits, ambitions and pretensions to a fine dust.

History cannot seem to leave well enough alone. Economies, societies, institutions...animals, vegetables and even minerals are always degenerating, degrading, and disappearing. When our present civilisation has finally gone away...what will be left of it? Just a few gold coins...and granite countertops...some converted into tombstones.A country should have a revolution every ten years, said Jefferson. He understood that you can't stand still. When a society reaches a certain level of success, it becomes a soft target for gamers. Parasites find the still unprotected spots and move in, like tapeworms into a fat man's belly. New life forms fill the hollow niches...and flourish. Opportunists leech onto the slow-moving hulk. Where a dynamic new republic pushes up its brightest and best to leadership positions - like Washington, Adams, and Jefferson himself - in the stagnant pool of an aging empire, the heavy thinkers sink to the bottom; what rises to the top are lightweight scum...the John Kerrys, George W.Bushes, and Hilary Clintons. Why doesn't the election process produce better political leaders? Because as time goes by, more and more people become complicit in decadence. The voters are farther and farther removed from the actual process of government...it is all only slogans and photo-ops to them. And the people close to power are the hacks and the hustlers, the politicians on the make, the parasites and players on the take. Laws multiply like the fishes and the loaves. Moses handed down only ten commandments. Jesus said only two of them were really important. But federal, state and local government give us ten thousand commandments - each one of them designed to protect or pamper some slimy creature living in some dark hole of the republic.More and more people get cheques, subsidies, grants and payoffs. More and more committees, agencies, and bureaus are set up to provide sinecures and curry favours. If we read it right, as many as half all the jobs created in America in the last five years were created by government! Nearly one-in-two British households now relies on the state for its income!Fraud and decrepitude seeps into the whole society. People begin to believe things that couldn't possibly be true - that deficits are good...that savings are unnecessary...that we don't actually have to make anything, we can just 'think' our way to prosperity. And as the structure degenerates and weakens, practically everyone, everywhere holds up his hands to try to prop it up.We see in Grant's Interest Rate Observer, for example, the efforts of US real estate appraisers to keep the bubble expanding. The Homebuilders Index is at a three-year low. Inventories are growing. But yet, the L.A. papers tell us that prices are still going up, pushed up in part by appraisers. This is revealed in the difference between the House Price Index of the FHEO - the Federal Housing Enterprise Oversight, no doubt a worthy and important agency - and its "Purchase Only Index". The House Price Index includes refinancings, which are based on appraisals. The Purchase Only Index does not; it is based only on what buyers were willing to pay.When you take into account the data that includes appraisals, house prices rose 12.95% in the 4th quarter of '05 over the year before. But when the appraisals are taken out, the number is only 10.8%.