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Posted by: deathray 5 months, 3 weeks ago
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deathray5 months, 3 weeks ago
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fta:
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Concern about the US current account deficit—the excess of expenditures over receipts in a country's balance of payments—long preceded the financial crisis. By 2005, it had already ballooned to 5 percent of GDP. How had this happened? The conservative explanation was that the US monetary and fiscal authorities had provided Americans with the money to make payments to foreigners for imports far in excess of the payments they received from foreigners for exports. This "spending beyond your means" is the classic road to ruin, for households as well as for countries. In the case of households, it is normally brought to an end by a notice from your bank or credit card company saying that you have reached your credit limit or your account has been frozen. In the case of countries, it is normally ended by the refusal of other countries to lend the profligate country the means to continue its spending spree. The puzzle, though, was why the countries with surpluses continued to pour their hard-earned savings into the debt-ridden American economy.
In a notable lecture in 2005, Ben Bernanke, about to become chairman of the Federal Reserve, gave the answer. At first, he said, it was because the US was a highly productive economy. But following the financial crisis of 1997–1998, East Asian countries had deliberately started accumulating foreign exchange reserves to guard against another flight of capital similar to what they had just suffered or observed. To accumulate reserves they had to run current account surpluses, by earning more in exports than they spent on imports. This tied in with their policy of undervaluing their currencies against the dollar in order to maintain export-led growth.-
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beavith15 months, 3 weeks ago
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i wish i could provide a quick link. maybe i'll get back to it if i get time later.
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an interesting article from last yea,r i think, called 'Chimerica' in the WSJ.
startling in its simplicity. the US and Chinese economies are integrated. we are a married couple. China, (he) works his ass off. US (her) spends her ass off. that's not what the article says. its a bit drier. that'd be my metaphor.
the benefits and risks of this relationship flow both ways.
we can have our current account balance and china can have her current account balance, but hte real current account balance is what is in excess or deficit from both.
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