Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

BUNK 48

TRADE DEFICITS MAKE DEFICIENT MARKETS

Do you know the US has a trade deficit? A huge one?

If not, you must be an aggressive Luddite, eschewing any form of modern interaction for fully the last 30 years. It was $504 billion at the end of 2009.¹ The world’s largest! The story goes: Our big trade deficit means we buy more than we sell. That profligacy weighs on our economy and stocks. Then, that big trade deficit hurts the dollar, weakening our currency relative to the world.

Nonsense! The word “deficit” shares a Latin root with “deficient,” but when it comes to trade, deficits aren’t deficient. Thinking globally frees you from this fear—standard debunkery. Stocks are highly globally correlated, and globally, all trade balances. By definition it must.

No one frets North Dakota having a trade deficit to California. North Dakotans like getting fresh produce in the winter and think the value they get by not subsisting on local barley and sunflower seeds through the long winter is well worth the money sent to sunny California. No one frets municipal debt based on state trade deficits or prefers municipal debt from states with state trade surpluses.

You Are Your Own Trade Deficit

Think it through another way: In one sense, you, personally, are a walking trade deficit. You go to the grocery store and buy milk, tomatoes, and macaroni and cheese. But you don’t sell the store anything in return. You just give them money! Egad! You must be bankrupt! You know that’s silly and that ...