After not being significantly large enough to make headlines for years, the US trade deficit is back in the news after ballooning 40% to $51 billion in March. $37.8 billion of the deficit was with China. The CBO projects a record high $486 billion trade deficit for fiscal 2015.
Immediately, defenders of the current US economic and fiscal policies laid the blame for the increase on a short West Coast ports strike and bad weather in the East. Regardless, this data, when GDP for the 1st quarter is recalculated, will result in negative growth, not the weak 0.2 percent increase recently released.
This news further compounds the FOMC’s dilemma as to when raise (or to start talking about raising) interest rates. Some economists say the Fed will raise in September while other others say it will be put off until 2016.
With the Dow Industrials’ failure to punch new highs, stock investors are looking for signs of when the FOMC will move. Expectations of what the Fed and other major central banks will do are driving stock markets, not projected earnings or forecasts for economic improvements. At the Wall Street casino known as NASDAQ, gamblers are betting on continued loose policies, but not yet on the more important Industrials average.
Meanwhile, China has created another problem for the US.
China is petitioning the IMF to indorse its currency, the renminbi, as a reserve currency, which would give it greater acceptance as a “stand alone” currency around the world. Inclusion of the renminbi as a Special Drawings Right (SDR) currency would diminish the value of the dollar (and the other currencies) that make up SDRs. This would not be a death keel for the dollar but at least another nail in its coffin.
Any serious analyses of fiscal policies since 2008 show that the inclusion of gold in SDRs would be a more appropriate move, but that’s not going to happen. At this time, though, individuals can still buy gold (and silver) and should do so while prices are near three-year lows.