The Trade Deficit rose to $39.70 billion in February, up from $36.95 billion in January and $26.50 billion a year ago. A higher trade deficit directly lowers economic growth. The silver lining in the report is that it is increasing for the "right reason," with imports expanding more than exports, rather than because both imports and exports were falling -- with exports falling faster. The increase in both imports, which rose 1.69% to $179.837 billion, and exports, which rose 0.2% to $143.174 billion, indicates that world trade continues to expand. If one steps back and looks at the year-over-year numbers, the increases on both sides of the ledger are much more dramatic. Over the last year, our exports have surged 14.3%. Unfortunately, that was more than matched by a 20.5% increase in our imports, and that increase was coming off a much higher base. The result was a 49.8% increase in the Trade Deficit. However, the year-ago figures were the worst point for overall world trade during the crisis, when world trade came to a virtual standstill. For even more perspective, it is worth considering what the trade picture looked like two years ago, before the financial meltdown occurred. Imports & Exports Down from a Year Ago Both imports and exports remain well below the levels of February 2008, with exports still 5.6% below the levels of two years ago and imports down 14.3%. Thus the Trade Deficit is well below the $61.7 billion level of February 2008. Those $60 billion-plus deficits were considered normal back then. In February of this year, the Trade Deficit consisted of a $50.12 billion deficit in goods ofset by a 11.58 surplus in services. The increase from January was just about equally split between an increase in the goods deficit and a shrinkage in the Service surplus. It is the Trade Deficit that determines just how much the U.S. owes to the rest of the world, not the budget deficit. As a matter of accounting identity, if we are running a trade deficit, then we are running a capital surplus, meaning we are importing capital (borrowing or selling assets) from abroad on a dollar-for-dollar basis with the trade deficit. Over the long term, those sorts of deficits are simply not sustainable. The current level of deficits are not sustainable either, at least not forever, but we can sustain deficits in the sub-$40 billion level for longer than we can sustain them at over $60 billion a month. While the year-over-year deterioration in the deficit will probably start to improve (since the Trade Deficit started to deteriorate again in March of 2009 after the dramatic improvement in the fall of 2008), the level of the deficit will probably get worse in March. The reason is that petroleum prices in the trade numbers lag those that are posted each day in the commodities pits. That is merely a function of how slowly an oil tanker moves. We only saw a very minor increase in petroleum imports in February, up 1.62% (partially offset by a similar percentage increase in our petroleum exports, mostly Alaskan oil going to Asia). Oil really is at the core of our problem, as our oil deficit is 45.7% of our total deficit in goods, and 57.7% of the overall Trade Deficit. The increase in the oil portion of the deficit from a year ago is responsible for $9.7 billion, or 73.6% of the $13.3 billion increase in the monthly deficit relative to a year ago. Reducing our oil consumption would be like chemotherapy to cure the cancer on the economy that is the Trade Deficit. Like chemo, the process would not be painless, but there is a therapy that would have relatively low side effects: natural gas. Natural Gas Could Play Important Role All around the world there are cars and trucks that run on compressed natural gas, some of which are actually made by Ford ( F ) and GM. Thus it is not really a technological issue, it is a "chicken and the egg" issue of having enough refueling places for natural gas. But since gas is piped just about everywhere, that should not be too big of a hurdle to overcome. One could even imagine people being able to refuel at home if the right sort of compressor were installed (there are some safety issues there, but are not insurmountable). Natural gas is extremely cheap relative to oil (on an energy-equivalent basis, multiply the price of natural gas, currently about $4.00 by six to get the evquivelent of a barrel of oil. Right now I would say that oil at the equivalent of $24 a barrel looks pretty good. Then add in the enviornmental benefits, as gas produces far less CO2 than oil (and about half as much as coal) per BTU. Of course, CO2 is not the only sort of pollution that we need to be concerned about, and natual gas produces almost none of them. Thanks to the new shale plays we have lots and lots of gas here at home. We also probably find at least as much natual gas as oil in the offshore areas that President Obama recently opened up for exploration. While such a shift would obviously benefit the big natural gas-oriented energy firms like EnCana ( ECA ) and Chesapeake ( CHK ), as well as the owners of natural gas pipelines such as Kinder Morgan ( KMP ) and Berkshire Hathaway ( BRK.B ), the losers would be people like Hugo Chavez and Saudi Arabia. Somehow I don't see that as being all that terrible. Yes, there will be some transition costs, and there is some risk to natural gas drilling. Still, it seems like the best bridge fuel until we can get to the point where most of our energy comes from renewable sources like wind and solar. Adding to our wind and solar-generating capacity will also help reduce our dependence of imported oil, but it cannot be scaled up as quickly as can natural gas, and they are not very practical as transportation fuels. Read the full analyst report on "F" Read the full analyst report on "ECA" Read the full analyst report on "CHK" Read the full analyst report on "KMP" Read the full analyst report on "BRK-B" Zacks Investment Research