The chart that sent the world into recession

For at least a decade the US consumer kept the rest of the world gainfully employed. She borrowed and spent on an historically unprecedented scale. The external deficit was where this huge spendfest showed up. During 2007, the US balance of goods and services was in the red by about $60 billion a month.

It ultimately proved to be an unsustainable level of consumption. Since the Lehman bankruptcy, US consumers have suddenly cut back on imports. In February, the external defict was just $25 billion. Since August last year, the monthly deficit has fallen by $35 billion. If this trend continues, then by mid-summer, the US balance of goods and services will reach zero.

China is most immediate victim of this sudden contraction in US import demand. From their peak in October last year, Chinese exports to the US are down 44 percent.

The UK hasn't escaped. Our exports across the atlantic are down 16 percent. Not that we exported that much to the US; for every one dollar of exports we sent westwards, the Chinese sent eastward $5.86