Forex Blog: Currency Trading News & Analysis.

March 15th 2007

US trade deficit not a concern

While the figures are still being calculated and confirmed, it looks like 2006 was the worst year ever for the US trade deficit, which is estimated to exceed $800 Billion. Economists have long argued that such an aberration is not sustainable in the long run and that the USD must fall in order to make goods and services relatively less expensive from the standpoint of foreigners. Now, however, economists are beginning to question this logic, by arguing that due to underdeveloped capital markets abroad, foreigners will continue to favor the US as a place to invest their assets. In hindsight, it looks like forex markets were ahead of the curve, since the failure of the USD to fall against other currencies despite its burgeoning deficits signals an utter lack of concern among forex traders that this is an important issue. The Economist reports:

If global imbalances are the result of such frictions, they are unlikely to unwind quickly. Financial systems, after all, do not mature overnight.

Read More: Sustaining the unsustainable

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Posted by Adam Kritzer | in Economic Indicators, US Dollar | No Comments »

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