The US Trade deficit finally begins a declining trend - 18-Jan-2009 - Generational Dynamics

Generational Dynamics Web Log for 18-Jan-2009

The US Trade deficit finally begins a declining trend

The deficit was "only" $40.4 billion in November, and falling.

Total credit market debt (from 2004) <font size=-2>(Source: PIMCO)</font>

Total credit market debt (from 2004) (Source: PIMCO)

Back in 2003 and 2004, when people were calling me a psychopath for predicting, among other things, a stock market crash and new Great Depression, I would occasionally get a serious question, something like, "If there's no stock market crash one year, you'll just say it hasn't happened yet. What has to happen for you to admit that you're wrong?"

My response would be to display a graph like the one above and say that I'll admit I'm wrong when public debt starts falling again, which hasn't happened since the 1950s.

Well, public debt hasn't started falling yet. In fact, with the kindergarten kids in Washington fighting over who gets to spend the trillion dollar stimulus package, public debt is certain to continue an ever faster exponential climb.

Stein's Law: If something cannot go on forever, then it won't.

At some point, something (i.e., a generational financial panic and crash, the first since 1929) will happen, and then public debt will finally begin to fall.

That's still in the future, but one component of the public debt is, for the first time in decades, showing the tiniest signs of beginning to level off.

Balance of payments, US, Nov 2008 <font size=-2>(Source: Dept. of Commerce)</font>

Balance of payments, US, Nov 2008 (Source: Dept. of Commerce)

In November, the US trade deficit shrank by 29%, by the most in 12 years, and more than forecast. Both imports and exports were reduced.

Imports were reduced by a record 12%, mainly because of the collapse in oil prices, from a high of $147 per barrel last summer to around $40 per barrel at the end of the year.

Exports were reduced by 5.2%, as foreign purchases of American cars and other manufactured goods fell. Since exports fell less imports, the difference between the two, the trade deficit, fell.

However, instead of this being a sign that the American economy is becoming more healthy, it's rather one additional sign that worldwide trade and transportation is grinding to a halt.

In a dramatic new development, freight rates have fallen to zero for containers shipped from Asia to Europe, underscoring the dramatic collapse in trade. Apparently zero rates are being offered in the hope of moving empty boats out of South China ports, where they're lined up, one after the other.

It's amazing and frightening to watch this going on. It's almost like a science fiction movie -- "The day the earth stood still" -- except that it's really happening (metaphorically), and it's disastrous.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (18-Jan-2009) Permanent Link
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Generational Dynamics Web Log for 18-Jan-2009 The US Trade deficit finally begins a declining trend

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Generational Dynamics Web Log for 18-Jan-2009
The US Trade deficit finally begins a declining trend