The big picture: 1973 to 2004

It compares the annual current account surplus or deficit (in billions, left scale) to the Federal Reserve’s nominal U.S. dollar major currencies index (right scale) from 1973 to 2004. The current account balance was tiny between 1973 and 1982, ranging from an $18.1 billion surplus to a -$14.3 billion deficit. In 1983, however, the deficit began to increase, reaching -$160.7 billion by 1987.

Over the next four years, the current account deficit shrank and even posted a slight surplus in 1991, but it has grown dramatically larger over the past 13years.

The dollar’s sharpest rally (35.9 percent from 1980 to 1984) occurred while the current account deficit went from being mostly insignificant to ballooning to nearly - $100 million. The dollar’s largest sell off (-38.92 percent from 1985 to 1987) erased those gains as the deficit continued to grow.

Many economists view today’s surging account deficit as one of the principal factors behind the dollar’s 29.4 percent slide over the past three years, which seems to parallel its steep drop in the late 80s. However, the dollar’s 28.5 percent climb from 1995 to 2001 is an important exception to this rule, because the current account deficit tripled from -$109.5 billion to -$385.7 billion during this period.