Thursday, October 11, 2007

The Falling Dollar and Shrinking U.S. Trade Deficit

WASHINGTON (AP) -- The U.S. trade deficit fell to the lowest level in seven months (see chart above), helped by record-high sales of American products and the declining value of the dollar. The deficit with China declined as imports edged down slightly following a string of high-profile recalls.

The boom in U.S. exports is helping to cushion the U.S. economy from the adverse effects of the housing bust and a severe credit crunch. Overseas demand for U.S. goods is being helped by a falling value of the dollar against many other currencies. That development pushes up the cost of foreign vacations and imports for American consumers but makes U.S. products cheaper in foreign markets.

WSJ -- The U.S. deficit in international trade of goods and services shrank 2.4% to $57.59 billion from July's revised $59.00 billion, the Commerce Department reported today.

Demand abroad for American-made products has been an important contributor to U.S. economic activity this year and Thursday's report indicated that trend continued through the third quarter. Meanwhile, the weaker U.S. dollar is making imported goods less attractive for American consumers, suppressing imports.

U.S. trade deficits with major trading partners generally narrowed in August, with record U.S. exports recorded to China, and many countries in Latin America.

MP: Compared to the same month last year, the trade deficit has fallen by almost 15%, from $67.6 billion in August 2006 to $57.59 billion in August 2007. Also, notice the close relationship below between the falling trade deficit and the falling value of the US dollar. As I pointed out in a previous post, the U.S. is now like a giant Wal-Mart for the rest of the world because of the falling dollar (almost a 10% drop in the last 2 years), with "everyday low prices."


At 10/11/2007 10:19 AM, Anonymous Anonymous said...

the U.S. is now like a giant Wal-Mart for the rest of the world because of the falling dollar (almost a 10% drop in the last 2 years), with "everyday low prices

It's true that imported goods in the west are really cheap - and have been for years - but there is another side to the coin

I live in the United Kingdom and get paid in dollars - all my clients and the various forms of revenue streams I have such as Google adsense, Clickbank affiliate program, etc. pay in US dollars

The British Pound is strong against the dollar and has been for a long time now - this means 1 dollar is worth only 50 cents to me - less by the time the dollars are converted to British Currency

Just offering an alternative perspective.

Stephen Todd

At 10/11/2007 9:41 PM, Blogger juandos said...

I question the value of the Euro or the English pound vs the dollar...

What criteria are they (whoever the, "they" are) measuring the value of money from socialist countries?

At 10/12/2007 4:55 PM, Blogger BxCapricorn said...

Terrific post. I've been discussing this tactic for months, as Hank Paulson continues to talk the "strong dollar" stance, and every action says otherwise. There's only one way to get yourself out of a trade imbalance with folks who hold over a trillion in bonds....make your money worthless to them....

Now, don't say a word or the jig may be up....


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