Just think what an economy we'd have if we balanced trade was maintained.  Or - gasp! - trade surpluses.  Trade surpluses were the rule, and apparently heretical now.  Peter Morici says our economy would be $3 trillion bigger now, but for the deficits. 

The financial crisis with Bear Stearns and the gang is caused by a "liquidity crisis".  What is that?  The underlying assets are not as valuable as they seemed.  What does that mean?  The packages of subprime mortgages were garbage.  They had terms in the financial instruments that made them garbage. But other assets were garbage.

Banks don't trust the balance sheets of other financial institutions to lend to them.  And we have to borrow to keep living "in the way we are accustomed to living."  And we don't produce stuff, and sell stuff.  We just buy stuff. 

This from a Harvard economist:

Kenneth Rogoff, a Harvard University economist, says the current difficulty
has many mothers -- the housing bubble, the subprime problem and the fact
that the value of U.S. imports has long outstripped the value of exports.
The current account deficit -- the broadest measure of the trade deficit --
burgeoned, and the U.S. needed to borrow ever larger amounts of cash from
abroad to fund it.

For years, Mr. Rogoff and like-minded economists harped that the U.S.
current account deficit was unsustainable. But despite the belief that it
would necessarily reverse, it kept growing through the first part of this
decade, going from 3.6% of gross domestic product at the end of 1999 to a
record 6.8% at the end of 2005. Lately, the deficit has seen a slight
narrowing, but the combination of credit crisis and the economic downturn
may have proved the catalyst for a faster, and potentially more dangerous,
adjustment.

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