Someone (sorry I’ve forgotten who it was) emailed to get my reaction to this chart posted on Zero Hedge:
The obvious “fight the power” reaction to the above is to say, “Those traitorous One World banksters! They outsource manufacturing jobs in order to fatten their own bottom line.”
But that’s not necessarily what’s going on. Since 1991, I would say what’s happening is that we’re seeing two big boom periods–during which the trade deficit went up, as well as corporate profits–that then collapsed and reversed the patterns. (Notice how the lines move when they cross the gray recession bars.)
Keep in mind that a current account deficit (which is a broader notion than trade deficit, but you can use the terms interchangeably for our purposes) is the flip-side of a capital account surplus. So if the Fed fuels an artificial boom, such that assets prices in the US are rising, then foreigners want to get a piece of the action. On net they want to buy more US assets, than Americans want to buy of foreign assets. The only way that is possible is if the US runs a current account deficit. Intuitively, as US stocks, real estate, etc. are booming in market value, Americans are willing to sell off more of them (in absolute dollars) and use the proceeds to import more TVs, cars, and other goodies from foreigners as payment.