United States Balance of Payments: A Comprehensive View

June’s 124.7 billion deficit rose from 113.4 billion in Q4 2015 and a 2.7% increase in current dollar GDP from 2.5% in Q4 2015. The quarterly figures hardly informs the overall view in Balance of Payments. Imported Goods always exceeds exported Goods. Services in exports holds the deficit from a far deeper deficit expansion.

Since 1992 and every year to 2016, Total Imported Goods and Services exceeded exported Goods and Services, despite an exponential rise in world trade. In 1992 and in millions, imported Goods and Services at 656,094 exceeded 616, 882 exported Goods and Services, a deficit of 49,212. In 1993, imported Goods and Services at 713, 174 exceeded exported Goods and Services at 642, 863, a deficit of 70,311. In 1995’s deficit of 96,384 was derived from 890,771 in Goods and Service Imports Vs 794,387 in Goods and Service exports. The Balance of Payment deficit increased every year for 24 years since 1992 to current 2015, the last year for a comprehensive view.

In 2015, a deficit of 500, 362 was derived from 2,761, 525 in Imported Goods and Services Vs 2,261, 163 in Exported Goods and Services. In 1992 began Total Exports at 616, 882 million and ended 2015 at 2,261, 163 yet every year imports exceeded exports. Total Goods and Service Imports began 1992 at 656,094 and rose to 2015 at 2,761,525. Current 2016 runs 1,090, 463 and just under 2015’s halfway point at 1,130,581.

The Total deficit Balance from 1992 began at minus 39,212 to current 2015 at minus 500,361 and increased every year since 1992. The Total balance in Goods began 1992 at minus 96,897 and rose to 2015 at minus 762,565. Current 2016 runs minus 373, 272 and slightly under the mid point at 381,282.

Last time positive Balance of Payments was recorded in Total Goods and Services was 1960 to 1970, 1973 and 1975 as the range was 91 in 1969 and 6022 highs in 1964. Year 1973 was an anomaly as + 1900 was recorded and 12,404 in 1975. Yet the historic negative downtrend in Goods and Service deficits began in 1971 at minus 1, 302 to reach historic deficit highs in 2005 and 2006 at minus 714, 245 and 761, 716.

Year 1975 was the last recorded positive balance and the best ever print since 1960. Year 1996 was minus 104, 065 and exponential deficits was the order of the day to reach current minus 500, 361. Years 1989 to 1996 ranged from minus 31,135 to minus 98,493. The turning point year was 1996 as deficits began to spiral downward.

The question to address is the NAFTA effect when signed into law by Clinton December 8, 1993 and passage November 20, 1993 in the 103rd Congress. The vote was 61 Yay V 38 Nay as 34 Republicans voted Yay and 27 Democrats. Voting nay was 10 Republicans and 28 Democrats

Why positive Balance of Payments in the 1960’s to 1970 was the United States exported more Goods than Services while Imports accounted for a vast majority of Services. But as seen from the small positive balances, the positive to the United States side was small. Deficits began due to less United States exports in goods and more exports in services.

As a Total in all Goods and Services, Balance of Payments Services turned positive 958 in 1971 and increased every year to current 262,203. In 2006, Total Services were 75,573 and skyrocketed to current 262,203. As an export alone, Services were positive 6290 in 1960 and increased every year to current 750,860. As a total in Goods and Services, Goods deficit is minus 762,565 V + 262 in Services. While Export Services alone is + 750, 860, Import Services printed 488,657.

Service imports alone began 1960 at 7,674 and printed 488,657 current. On the Goods alone side, Imports began 1960 at 14,758 to current 2,272, 868 V United States Exports alone at 1,510,303. What accounts for the historic 500 million deficit is total imports to exports in Services and Goods at 2, 761,525 V United States 2,261, 163.

Total Balance in United States Services V Goods Correlate 1 year at 0.01% and minus 54% over a two year period. Yet Imports to Exports alone Correlate 97% and 96%.

Brian Twomey, Inside the Currency Market, btwomey.com

EUR/USD Interest Rate Corridors: Levels, Ranges, Targets

When the ECB cut interest rates March 2016, the interest rate Corridor was also slashed to 40 basis points short term and 65 basis points inside the entire corridor. In December 2015 and upon the next ECB cut, the corridor was adjusted to 35 basis points short term and 60 basis points in the corridor total. September 2014 and the June 2014 warning to go negative interest rates, the corridor stood at 25 basis points short term and 50 basis points long term. Since June 2014, the interest rate corridor survived inside a short term range corridor from 25 to 40 basis points while long term the corridor stood from 50 to 65 basis points.

Prior to September’s 2014 cut to go negative, November 2013 corridor stood at 25 basis points short term and 75 basis points long term. Why the wide variation yet why the corridor stood at 25 basis points is due to the first experiments to test negative interest rates after a year long study by the ECB.

The more normalized EUR/USD, interest rate and economic system dates to May 2013 when the short term corridor was 50 basis points and 100 basis points for the entire channel. In July 2012, December 2011 and November 2011, the short term corridor was 75 basis points and 150 long term. For the vast majority of the ECB and EUR/USD life since 1999, the corridor remained within a 75 and 150 basis point channel.

As the two year anniversary approaches when the ECB went negative, European GDP growth rates ranged from 1.3 to 2.0 and now 1.8. Negative interest rates bought the ECB 50 basis points in GDP yet prior to 2014, growth rates were located from 2.0 to 4.0. The CPI index ranged from 98 to 100.5 and stands at its highest level since Euro introduction. Producer Prices at current 101 peaked at 110 September 2014 and ranged from 100 to 110 since September 2014.

EUR/USD problems are found inside its longer term ranges as price pressures are building for a big move. The further problem inside this big move scenario is equal pressure is relieved at 1.0900 and 1.1400. The point at 1.1400 is EUR/USD massive trend line point and is dropping by the month since November 2015. Yet overall, the EUR/USD price is extremely low and oversold intra day. What this means for ranges is temporarily more of the same alongside the caveat of mounting range break pressures.

The base price in EUR/USD is found at 1.0999 yet EUR/USD hits bottoms and extreme prices at 1.1027 and 1.1021, 60 pips from the 1.1083 close. EUR/USD break at 1.1134 and 1.1103 was the turning point as 1.1103 marked the downtrend point. Due to the low price and oversold, longs must break 1.1101, 1.1104, 1.1125 and most vital at 1.1134. The range becomes 1.1134 to the next break at 1.1193, 1.1206 and 1.1217. From 1.1134, further confidence to longs is found by a break higher at 1.1161.

EUR/USD moves higher by breaks at 1.1088, 1.1090, 1.1096, 1.1101, 1.1104, 1.1125 then 1.1134. A break of 1.1134 is most vital to see EUR/USD higher.

The overall strategy is longs preferred and long on price drops but against caution because EUR/USD has big problems. Vital break points are close yet all are surrounded by current prices.

Brian Twomey, Inside the Currency Market, btwomey.com