The United States Economy is the biggest one in the world (if we use GDP).
And since USD, the currency of the United States, is the single most traded currency in the world (by far)…
Having a basic grasp of its economy would help you out (if even for general knowledge, hahahaha).
Thus, GDP per capita helps us make a fairer comparison.
So how does the United States Economy fare?
According to the CIA World Factbook the US is Number 20 in the list.
Not bad. Not bad at all. But not the best either.
Places like Luxemburg basically have twice the GDP per capita.
Even then… comparing countries isn’t that easy.
a place like Singapore (no. 7) is considerably smaller, but has had attractive
immigration policies for multimillionaires (or billionaires, just ask Facebook’s
co-founder Eduardo Saverin).
But it gives us a rough guide.
Ok, what’s next? After all we’re talking the United States Economy here.
Yes. Let’s see how Gross Domestic Product for the US breaks down:
The country’s economy is well-diversified, since no single industry accounts for more than 15% of GDP.
Some of the most important ones are government, real estate, manufacturing, health, and finance (among others).
In terms of goods vs services, about 70% of production comes from service industries, such as health and finance, but these two are far from the only ones.
What about trade?
Total trade (exports + imports) in the United States was about 30% in 2013.
However, the trade balance (exports – imports) only accounts for something around 2.5% of GDP.
This is because imports are subtracted in calculating GDP, while exports are added.
Since US imports are slightly larger than its exports, the difference, a trade deficit is what gets subtracted from GDP.
But a deficit in and of itself isn’t bad for the economy (a discussion for another time).
By this metric, the United States Economy doesn’t depend too heavily upon other countries.
Most of its production goes to domestic consumption, government expenditure, and investment (but specially consumption).
Don’t get discouraged though…
The exchange rates of USD with other currencies move all the time, and often, they move a lot.
In another article, I’ll explain why this “paradox” isn’t really a contradiction.
Are we done now?
So we know the United States has a trade deficit versus the rest of the world.
Note: The deficit can be seen as debt since the US has to finance those extra purchases of foreign goods and services somehow (money goes abroad).
Note2: We went through the trade deficit, but the current account (which also includes other money flows) is also in a similar deficit with respect to GDP.
With that said, according to the International Monetary Fund, the US net government debt as percent of GDP is among the highest in the world.
Note3: net debt is what the US government owes versus what others owe the US. In this case, the US owes more to others.
What are we talking about here?
The net debt of the US is close to 90% of GDP.
Maybe that’s why you hear so much talk about debt going too high…
Well, don’t feel too bad, Japan’s is about 130% of GDP, and Greece…
It’s just worse.
Is that high debt a seriously bad thing?
There’s a lot of debate about it.
On one hand, debt allows a country to expand its economy at a faster pace.
But if the service of such debt becomes too onerous… it’s like having bad loans…
Researchers have had a field day trying to pin down what should be a reasonable level of debt, but each country is different, so there isn’t a universal rule.
Of course, politicians take those decisions for everyone else, and it behooves them to get more debt if it helps the economy (and thus, their career prospects).
No criticism here, seriously.
Hope this was informative.
See you soon,
The Forex Economist
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