21 April 2009

Collapsing US Aggregate Demand Strikes Imports Hardest

Falling aggregate Demand and the weaker dollar have finally broken the back of the parabolic growth of imports and the US trade deficit.

As one can see, imports have been hit much harder than exports. This is why Japan and China will be struggling with their export driven GDPs.

This is the worst decline in retail sales in the post World War II era.

The US consumer has finally hit the wall. The folks in DC think they can crank this Frankenstein monster of reckless consumption back up again, given the right jolts of liquidity and spin.

To think that consumers will start borrowing and buying again without a meaningful change in the dynamic of their cashflows implying an increase in the median wage, is a hard to believe. Even for the reckless American consumer, this episode has been daunting to their over-confidence, and rightfully so.

Let's hope they don't just patch this bubble and blow it back up again. But it certainly appears as though Larry, Ben and Tim are going to try and take it to the limit one more time.