Reading time: 2 – 4 minutes
This blog has many articles exploring the relationship between the US trade deficit and interest rates.
Ever since President Nixon permanently took the US off the gold standard in 1971, the US trade deficit has been growing.
The Crisis of Credit: Part I
As the US trade deficit has grown over the last forty years, interest rates have been driven down.
The trade deficit has resulted in foreign-owned dollars being deposited in US banks.
In turn, these dollars have moved into the fixed interest market, creating the excess of demand for debt securities that has depressed interest rates.
The Crisis of Credit: Part II
The excess of dollars caused by the trade deficit has also led banks to offer progressively riskier debt instrument, culminating with sub-prime mortgages that triggered the worldwide financial collapse in 2008.
The videos on this page explain the mechanics of the sub-prime mortgage crisis in simple terms.
What caused the excess of credit?
The origins of the trade deficit and the credit crisis of the early 21st century are considerably more complex than the simple “Americans borrowing from Chinese” buzz-explanation.
You can read up on this topic in many articles on this site.
Here are some relevant tags on the many articles that deal with this subject:
- US dollar
- Gold standard
- Interest rates
- Reserve currency
- Mercantilist ideology
- Sub-prime mortgages
- Foreign investors
- US trade deficit
- Labor unions
Featured articles dealing with the US trade deficit also appear on a rotating basis in the World Economy classification at the bottom of the front page.