The US trade deficit has since shrunk to $27 billion but was $77 billion a year ago. The chart shows exports have shrunk, but imports are shrinking faster as the US consumer gave up purchasing.  The more the price of oil goes down the more the trade deficit will shrink, this would be a good thing.

Deflation is propelling the US Trade balance to head for more healthy territory.

The Fed and US citizens out purchase China as holders of  US Debt

The market for Treasury bonds is now more reliant on U.S. buyers — including the Federal Reserve after its recent buying spree — than the Chinese.

China held $801.5 billion in Treasury debt at the end of May. The Fed at that time held about $598 billion, although that has now risen to $704 billion. The latest figures for U.S. households, from the first quarter, showed holdings of $643.9 billion — more than double the $266.6 billion in the fourth quarter of 2008.

The rising budget deficit, which has led to record issuance in recent months, doesn’t necessarily mean the government is becoming more indebted to foreigners. While the U.S. government is borrowing furiously, the current account deficit has actually halved from an annualized $829 billion in mid-2005 to an annualized $409.5 billion in the first quarter of 2009. That shows the U.S. is now less dependent on external financing, because it is saving more domestically. The U.S. government may be in hock, but it is increasingly to its own citizens.