And so after that epic 5.0% Q3 GDP print, driven largely by Obamacare, the payback begins, and the annualized Q4 GDP print, which came in at nearly half the previous quarter run rate, or 2.6%, is about to tumble by another ~0.5% following the just released trade data for December which saw a 17.1% surge in the US trade deficit from $39 billion (revised to $39.8 billion) to a whopping $46.6 billion in December, the widest deficit since 2012, as US exports declined 0.8% to 4194.9Bn from $196.4 Bn, while imports rose notably from $236.2Bn to $241.4Bn in the month before. All of this brought to you courtesy of the soaring USD. This was also the biggest miss to expectations of $38.0 billion since July of 2008. If this does not force policymakers to reassess the impact of the soaring dollar on US trade, nothing will.
Finally, if and when the US shale boom ends, and the US is forced to once again import the bulk of its oil needs from abroad, watch as the US deficit surges in the coming months and years, which incidentally is precisely what the Fed needs: after all in order for the Fed to monetize US debt, the US needs to issue debt to fund its deficit, which now has no choice but to go far wider from recent levels in order to restock the available stock of US Treasurys.
I’ve always been a big fan of King Dollar. A continental-size economy can’t export its way to wealth, and export-dependency puts growth at the mercy of some of the world’s worst-run nations. China has pretty much hit the wall on export growth (there’s only so much cheap crap the rest of the world can buy), and is facing serious transition pains trying to move to growth based on domestic consumption.
But no matter what the Fed wants to do, it has probably reached the end of the line in its attempts to devalue the dollar. Devaluation is a game the weakest countries always win, and which the international reserve currency must eventually lose.
Our exporters may suffer, but consumers win — and that’s a recipe for the long-term health an economy the size of ours.