Trade Deficit

Over the past decade, the problem of global imbalances has been a perennial topic at all the most important economic events. But despite the speeches and the acres of newsprint devoted to the topic, there has been absolutely no progress made toward resolving the problem.

The most visible statistic that charts the phenomenon is the U.S. trade deficit. For most of our history the United States exported much more than it imported, resulting in trade surpluses. In some years, especially toward the middle of the twentieth century, these surpluses were truly massive. We used the excess funds to build more capital at home, and to buy up more capital abroad. In the process we became the richest country on the planet. But in the late 1960s the trade balance started to change, and by 1976 the United States began running persistent trade deficits.

— Peter Schiff; How an Economy Grows and Why It Crashes

The dollar's reserve status has played a significant role in allowing this deficit to grow unchecked. Without the built-in demand for dollars made possible by the global economic system, no country could long sustain such imbalances. Companies and governments would simply refuse to trade goods for a currency with which it couldn't buy anything.

— Peter Schiff; How an Economy Grows and Why It Crashes

During the 1970s and 1980s these deficits were on the magnitude of $10 billion to $50 billion per year—large, but manageable. In the 1990s, the figures started hitting the $100 billion mark. Although the extras digits were alarming, the gap was still relatively small in comparison to our massive economy. But with the new millennium, things started to get silly.

For the first decade of the twenty-first century, which corresponded with the rise of China as an export economy, the U.S. trade deficit averaged around $600 billion per year, topping out at a staggering $763 billion in 2006. That's more than $2,500 for even man, woman, and child in the United States.

— Peter Schiff; How an Economy Grows and Why It Crashes