Global Imbalances
This IMF staff paper – the lead author is the chief economist, Olivier Blanchard -is well worth reading. Makes a rather urgent call for expansion of internal consumption demand in China and currency realignments if we are to work our way out of the crisis.
http://www.imf.org/external/pubs/ft/spn/2009/spn0929.pdf
try this link
I kind of like this link to the Krugman piece dissing China:
http://www.newyorker.com/online/blogs/evanosnos/2010/01/a-chinese-response-to-krugman.html#ixzz0cU6DwjRR
Its a half hearted attempt which I expect China to do eventually once they find out what they’ll do with their us treasuries any rise in they exchange rate results in a loss the simply do not wish to take, Chinese themselves are high savers so the CCP knows that internal consumption obviously can take place, it just their boatload of US debt holding them back. Also how would a sagnificantly lower us dollar help canada unless we consume more and export less domestically and to all foriegn nations.
Consider this, Richard Duncan that global aggregate supply is beginning to outrun global aggregate demand as the countries pursuing export-oriented growth are producing more and more goods without a corresponding increase in income among worldwide consumers. In other words, the excess of savings over investment in the export-oriented countries will drive the world economy into a depression. Eventually, he predicted, US consumers will not be able to borrow more for consumption. Like other debtors they will be forced to pullback, causing the depression.
Roubini’s ideas and Duncan’s ideas do not conflict. In fact they coalesce around the same idea: the American consumer can no longer afford to pile on debt
The major problem facing all export oriented countries is that the 5% of world pop America can not continue its consumption pattern.
What if krugman is right and China should dump its treasuries, that will be a nagitive for the us dollar and as krugman points out could work but the politcal fallout and emotinal fallout the average american woul have when economist tries to explain 30 to 50 percent drop in your currency is a good thing will be hard to swallow.
That is why, I have written before there will be a shift in global consumption patterns where many export oriented strategies will have to change. The danger if were unwilling to change policies that seemingly have worked before the real world change in the macroeconomic events I cite that are occurring. Our central bank language gives me hope, where our government fails, for awhile I was worried that our central bank would keep interest rates significantly low for an extended period waiting till after the fed began raising their rates which is far off as indicated be which was cause for aggravated responses.
The statements from our central bank seemed to be changing our own consumption patterns we our doing our part. Actually as our dollar goes higher we will have to consider new and different taxes that don’t target business, but that will mean reduction in spending otherwise the people will adjust their behaviour accordingly, which has the effect of nullifying any benefit a tax cut would have. If reduction in spending is polotically impossible to achieve then tax cuts and also are irresponsible.
Citing government stimulus without addressing balance of trade or ignoring it goes against the fundamentals to Keynes’ idea which the fostering and importance of nations achieving a balance of trade avoiding the scenario we currently have of some nations becoming creditors and others debtors trough trade accounts.
Also there our real wold example borne out by experience of many socialist countries had believed spending money even on useless jobs citing the soviet empire, or in useless ways is beneficial is false, Zimbabwe, post wordworld ww2 East Germany, Argentina, where government spending as either leaded to rationing in all goods or everyone who uses their national currency cant afford toilet paper. In the rare cases where massive inflation did break out, it was in weak economies. Their is a reason recoveries our invariably led by the private sectors.
There is not one role model of any country committing massive am-mounts of taxpayers dollars in peace time that has worked. Even the U.S. history reveals that past stimulus actions have been too ill-timed or ill-suited to have actually helped, same with japan. Further, many policymakers are driven by motives at odds with the Keynesian assumption that they will diligently pursue the public interest, as rational expectation of human behavior, which is not capitalism fault but one of humanity or the greater good as these individuals motives often our displaced feelings of what they themselves thinks is best.