Trade deficits and economic collapse

The reason a country has large trade deficits is because it is not competitive. The outcome is that its currency devalues. Following a protracted devaluation of the currency its products become competitive again. And the trade deficit declines and the borrowing needed to finance the trade deficit decreases.

This is what is happening to the USA with its huge trade deficit. The markets correct this imbalance by selling dollars. The dollar will have to decline long enough until our products/services become competitive again. Only then will borrowing to finance the deficit will decrease. This is the reason the USA does not have the same problems as Europe.

The problem with Europe is that the exchange rate adjustment cannot take place. Italy, France, Spain, Portugal, Ireland have huge trade deficits. But their "currency - the Euro - cannot be devalued. They have to keep borrowing to finance the trade deficits.

They are being asked to implement dicey austerity programs. What they need is to implement programs to improve their competitiveness. But their democratic-socialist policies will never allow this transformation.

This European issues cannot be hidden by mountain of money directed to the banking system and governments.