• 287 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
Trade In Counterfeit Goods Hits Half A Trillion Dollars

Trade In Counterfeit Goods Hits Half A Trillion Dollars

The counterfeit market has breached…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Tesla Struggles To Compete In European Market

Tesla Struggles To Compete In European Market

Tesla continues to catch the…

Michael Pento

Michael Pento

Pentoport

Michael Pento produces the weekly podcast "The Mid-week Reality Check", is the President and Founder of Pento Portfolio Strategies and Author of the book "The…

Contact Author

  1. Home
  2. Markets
  3. Other

Trade Deficit Data Belies U.S. Recovery

Wall Street is extolling the virtues of our rising U.S. trade deficit as a sure sign the economy is well on the road to a full and viable recovery. It was reported last week that our level of trade imbalance jumped to a six-month high in December to $48.8 billion (up 3.7%), from $47.1 billion in the prior month. For all of 2011, the shortfall grew 12% to $558 billion, the most since 2008.

For the uniformed on Wall Street and in Washington, the growing tide of red ink is a signal that America is returning to normalcy. The only problem with that is our so called "normalcy" is leading us rapidly into insolvency. The sad truth is that our desire to consume foreign made goods with money that is borrowed is evidence that our country is growing weaker by the day.

A U.S. economy that is indeed strengthening would mean that we are producing more goods and services available for foreign purchase. That would serve to LOWER the trade gap, not increase it. What is occurring instead is an increase in consumer credit, which has enabled the American consumer to purchase yet more foreign made goods. To prove that we are returning to our borrowing and consuming ways, the Consumer Credit report showed that credit rose at an annual rate of 7.6% in the fourth quarter and was up 9.3% for the month of December. Our rising trade gap only proves that U.S. banks and consumers haven't learned much from the credit crisis and Great Recession. Taking on debt to consumer foreign made goods can never be a signal of economic health.

The consistent and growing flow of dollars out of the country leads to a weakening currency and the transfer of an ever increasing amount of U.S. debt into foreign control. But, it just so happens that the U.S. is happy to offer foreign investors an unlimited supply of debt for them to purchase--lucky for them. If the Congressional Budget Office has is correct, this year's budget deficit will be $1.1 trillion...and it would mark the fourth year in a row with deficits north of $1 trillion!

Foreign central banks now hold more than 50% of all U.S. debt. But their willingness to continue recycling our trade deficit and to hold dollar-denominated assets should soon start to wane. Our own bond bubble will pop just like it has already burst in Southern Europe. Only when the U.S. debt market collapses, trillions of dollars will be thrown on to the foreign exchange market, as foreigners repatriate dollars back into their domestic currencies. The destruction of our dollar and our debt will be very pernicious for the U.S. and we should be doing everything in our power to ensure the continuation of the dollar as the world's store of wealth. Unfortunately for us, our government and central bank are working very hard to expedite its destruction.

 

Back to homepage

Leave a comment

Leave a comment