The widespread assumption is that trade deficits are bearish. But what does the evidence show?
This chart, from The Socionomic Theory of Finance, reveals that had economists expressed relief whenever the trade deficit began to expand and concern whenever it began to shrink, they would have quite accurately negotiated the ups and downs of the stock market and the economy for 40 years.
Over the span of these data, there has been a consistently positive—not negative—correlation among the stock market, the economy and the trade deficit.
So, the trade deficit’s widely presumed effect is 100% wrong.
Learn what other assumptions you could be falling for when you read Chapters 1 and 2 of Robert Prechter’s book, The Socionomic Theory of Finance – free.
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