About That Soaring Dollar: US Trade Deficit Excluding Oil Has Never Been Worse

Remember that in a beggar thy neighbor world, where currency warfare has once again broken out between the US, Europe and Japan, for every winner there is a loser. In this case, the loser is the one country that has decided that a strong currency is a great thing for its economy (if only for the time being): that would be the US. There is a problem with that, however: because in Q3 the trade deficit rose by 7.6%, virtually identicaly to how much stronger the US Dollar basket, the DXY, increased by in the same period which surged by 7.7% the most since Q3 2008 when Lehman blew up!

So why is this relevant? Because as the chart below shows, US trade excluding Petroleum, just tumbled to $48.3 billion, essentially matching the worst print in the history of the series, suggesting that portrayals of the US as a resurgent export powerhouse are completely erroneous, and that instead the US is as big a net importer of goods and services, aside from the Shale revolution of course, as ever.

And the other side of the coin: if and when the Saudi crude crunch finally starts taking out shale capacity slowly at first, then very fast, watch how the headline trade balance line and the line ex-Oil slowly but surely converge, as the US reverts to its status as the world's biggest net importer once more.

The bigger question, however, is how much longer will the Fed stand on the side and pretend not to notice that once again the surging USD (because, snicker, the Fed will never do QE again) is about to crush the US economy yet again. And woe to the spinners if this winter there is no heavy snowfall on which to blame the resultant GDP collapse.

One thing is certain: if the trade deficit surge continues, and Q4 GDP tumbles to 1% or less, the Fed will be right back at the frontlines, CTRL-Ping the US economy right back into "beggar thy global neighbor" competitiveness.