WASHINGTON — The U.S. trade deficit fell to the lowest level in 28 months as a falling dollar spurred U.S. exports to an all-time high. The deficit with China jumped to the second highest level on record as imports of toys and other goods surged despite a rash of safety recalls.
The Commerce Department said today that the deficit for September dipped by 0.6 percent from the previous month — to $56.5 billion. That was the narrowest trade imbalance since May 2005 and took economists by surprise. They had been forecasting the deficit would rise.
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Critics of President Bush's trade policies say that even with the narrowing of the deficit this year, the imbalances are still running at unsustainable levels, forcing the United States to depend more and more on foreigners' willingness to hold dollars to finance the imbalances.
While a falling dollar is good for exports, it raises worries that at some point foreigners will be less willing to purchase dollar-denominated investments such as U.S. stocks and bonds. Such a change in sentiment could send stock prices plunging and push up U.S. interest rates.
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http://www.chron.com/disp/story.mpl/business/5288264.htmlThat last paragraph explains why the markets went haywire when the Chinese talked about divesting themselves of dollars.