Today's New York Times
http://www.nytimes.com/...
reports that the January 2006 trade deficit was 68.5 billion dollars. By contrast, the January 2005 trade deficit was a mere 58.3 billion dollars, a sixth lower.
The 2005 trade deficit was 725 billion dollars.
When matters cannot continue, they often don't. However, until that limit is reached, it is straightforward to estimate the trade deficit to be expected for 2006, namely
below the fold
the year trade deficit in 2005 was a bit under 13 times the January deficit. If nothing much changes, one predicts that the 2006 trade deficit will be
850 billion dollars
and the 2007 trade deficit will be
one trillion dollars or a trifle less.
Someplace, I think I predicted the 725 or so billion, but I cannot now find the prediction to see how far off I was.
Eventually, the ship of state will run up on the rocks, and these matters will right themselves. When this occurs, it is reasonable to expect that the dollar will fall, perhaps appreciably, making foreign goods like oil and VCRs much more expensive. A possible secondary response will be that the Federal Reserve board raises rates to discourage a fund outflow, though it is not obvious that you can raise rates high enough to have an effect on the situation.
No, I cannot predict whether this will happen before or after the next election.
A few specific categories of stock will benefit, namely stocks whose underlying firms have large foreign operations that return dividends to the US, and stocks in energy firms.