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4 Economies...1 Throne!
Words by Fed Chairman Mr. Ben Bernanke might be the only hope for the economy as it is now sinking into a recession after the release of some poor data. The world's largest economy is on stake now and it would be reasonable for any other economy to fight to capture the throne…


A speech made by Mr. Bernanke yesterday showed how extremely dovish he was and how they stand firm on acting in a timely manner and are ready to take substantive action to help pick up the growth and performance of the U.S. economy. Now that expectations for growth in 2008 have dampened, the chairman gave signals that allowed markets to place a 50 basis point cut in interest rates in their next meeting which was a bad signal for the number one world traded currency.

What made things worse also was the US Trade Balance for the month of November showed a widening deficit to $63.1 billion worse than the forecasted and prior deficit of $59.5 billion and $57.8 billion. This was the largest deficit since September 2006 as the gap widened 9.3%.

Exports rose 0.4% to $142.3 billion and imports inclined 3% to $205.4 billion but the actual gain was not to due to the amount of exports or imports but simply it was a result of higher prices.

Now that the gap had widened more than expected, analysts now had altered their projections for the fourth quarter growth as they see it had declined more than the 1.2% annual reading they had previously forecasted.

According to the Commerce Department, the problem highlighted in the trade report was the soaring energy prices. For quite some time this was the reason why people thought that the deficit has widened. However, this isn’t true because despite the fact that oil prices have inclined, the real trade gap widened 3% in November excluding petroleum.

The continuing weakening of the U.S. dollar has helped boost exports for the economy as local manufacturers and producers benefited from the higher prices and weaker currency since it is now cheaper for investors using foreign currencies to purchase U.S. goods. However, it was a slap to the imports since it became more expensive to buy goods from abroad and that fact that the economy is losing track in the United States raised some eyebrows.

In seasonally adjusted terms, trade with Canada, Europe and Mexico have declined in November. However, it could start to pick up pace once again after prices of goods from Canada rose 0.6% in December compared to the 5.9% jump in November. And as for goods from Europe, prices inclined 0.6% in December and remained unchanged from November.

In a different report, the US Import Price index for the month of December came in flat slightly lower than the expected reading of 0.1% and worse than the previous reading of 2.7% in which it was revised to the upside to 3.3%. As for the yearly reading, a 10.9% was documented lower both the expected and previous readings of 10.5% and 11.4% respectively. The gain witnessed in November was the most it has gained in 17 years.

The price of imported petroleum declined for the first time since August by 0.6%. Prices of imported capital goods were flat in December after inclining 0.2% in November.

For the meantime, export prices inclined by 0.4% in December after it had previously gained 0.9%. Natural Gas prices also rose 2.8% compared to the jump it witnessed in November by 16%.