We Are Entering A 'Strange World', Where The Dollar Gets Stronger, And Things Get ...

thenews 2013.02.10 17:11

On Friday, the US trade deficit shrunk by far more than expected, in large part thanks to declining oil imports.

From CSMonitor.com:

The oil and gas picture is improving. The trade deficit for petroleum-based goods alone shrank from $326 billion in 2011 to about $291 billion last year. That’s still a big deficit, but oil imports fell by about $24 billion. Meanwhile, petroleum-related exports rose by more than $10 billion. According to analysis of the data by IHS Global Insight, an international consulting group, oil imports in December hit their lowest level since December 1999.

The decreasing need for oil from abroad is basically a result of two secular trends.

One is that the US is producing more oil.

Both of these trends seem likely to continue.

That has profound implications, both in terms of financial markets and geopolitics.

SocGen's Sebastien Galy explains how we're entering a "strange world" where the dollar is bound to strengthen. And the US global military footprint is bound to shrink (due to lower resource demand).

In 1979, snow reached the second floor in Washington DC, in 1998 the electrical grid of Quebec physically collapsed, yesterday a few inches of snow in NY made headlines worldwide. Much as snow, it is the steady accumulation that matters for the trade balance and the USD. This global imbalance has risen to the size of an elephant as the rest of the world grew more from exporting to the US. In Pratchett's imagery, the elephant has been riding on four increasingly restive turtles and holding the weight of the world on its shoulders. This elephant is on a diet.