Posted on 02/15/2006 6:26:03 AM PST by Paul Ross
Ricardo Hausmann
Kennedy School of Government Center for International Development,, Harvard University
Federico Sturzenegger
Kennedy School of Government, Harvard University and Universidad Torcuato Di Tella
November 13, 2005
Over the last couple of years the bludgeoning of the US current account deficit, currently ticking at over 700 billion dollars a year in 2005 alone, has led to significant concerns about the future of the US and the possibility of a major global crisis. It comes after 27 years of unbroken deficits which have totaled over 5 trillion dollars. Once the massive financing required to keep on paying for such a widening gap dries up, perhaps because foreigners become satiated of owning such a large and rapidly growing amount of American debt, there will be an ugly adjustment in the world economy. The dollar will collapse, triggering a stampede away from American debt, interest rates will shoot up and a sharp global recession will ensue. Martin Wolf calls this situation an “unsustainable black hole” and points that “The U.S. is now on the comfortable path to ruin”. Maurice Obstfeld and Kenneth Rogoff (2005) remark that “any sober policymaker or financial market analyst ought to regard the US current account deficit as a sword of Damocles hanging over the global economy”, or more dramatically, as stated by Nouriel Roubini and Brad Setser (2005) “The current account deficit will continue to grow on the back of higher and higher payments on U.S. foreign debt even if the trade deficit stabilizes. That is why sustained trade deficits will set off the kind of explosive debt dynamics that lead to financial crises”. Figure 1 highlights the large and growing yearly and cumulative current account deficit of the US over the last 25 years which has made the US the largest net debtor in the world.
(Excerpt) Read more at cid.harvard.edu ...
Uh oh, that'll crash one of our leading exports, IOU's.
"The U.S. is now on the comfortable path to ruin"
For some the path is alcohol and / or drug addiction -- for "free traders" of the New Democrat Third Way persuasion the path is ideology. For "free traders" of the right it's "cheap labor" addiction.
"Once the massive financing required to keep on paying for such a widening gap dries up, perhaps because foreigners become satiated of owning such a large and rapidly growing amount of American debt, there will be an ugly adjustment in the world economy"
We've got their stuff, they have our money. Which would you rather have?
Our money can only be spent here so what are they going to buy from us?
When they won't sell us stuff because our money is no good, maybe we will make stuff here.
Yes, it will be an ugly adjustment but better sooner than later.
bludgeoning? (clubbing or beating with a club) or burgeoning? (growing and flourishing)
Doesn't Harvard Publications have editors?
it is poetic license... the burgeoning deficit will end up bludgeoning the US economy... quite clever combining the two really... sort of like outsourcing jobs...
teeman
Just saw this over on another thread...Ha Ha Ha America. China's gloating over the impending U.S. economic collapse and their triumph, translated.
The paper does conclude that doomsday scenarios are consistently wrong.
Honestly, the trade deficit is completely meaningless as a negative indicator.
The domestic budget deficit is not highly significant.
The U.S. global economic position is powerfully good and cannot be seen as weaker than other national alternatives.
The world perceives the US to be the only major power and the only economic engine-- end of story.
lol!
Moderator of the "Big Reactor in the Sky"?
LOL! Check out "Ha Ha Ha America".
I assume you are being sarcastic and facetious.
Unfortunately the liberal fairy tale in vogue at the Federal Reserve is coming to an end, as China supplants the U.S. as the manufacturing supplier directly throughout the world, cutting out the middleman...the U.S.A.
Pretty soon, inevetiably, only the Chinese Yuan will be the world reserve currency.
And "dollar diplomacy" foreign policy will implode along with our economy.
bump
And a loaf of Wonder bread will cost a day's wage for the CEO of GM; we'll eat grass.
And for "free traders" of the NWO persuasion, the path is a lust for power in selfish pursuit of a global fantasy.
That'd be the New Democrat Third Way "progressives" and their Davos buddies who want "rules-based" free trade, their rules. To wit, "social justice," "economic justice," "racial justice". . . .
They also want a world social contract to replace our old one. They want our conservatism and our 20th century liberalism (i.e., Humphrey, Scoop Jackson, et al.) to be dumped into the trash bin.
The "free trade" conservatives are free tradin' our technology, wealth, and production to developing countries like Red China and IMO are what Lenin called "useful idiots."
I think there are some fairly specific and compelling reasons why America will find itself less affected by potential negative consequences. The American Messianic view is actually substantially justified.
The most interesting rationale is discursive. America has such a radically open society while ironically believing in "truth" that this irony propels it forward in global affairs. The richness of debate within America [for me this is a post national concept including all democratically inclined individuals] is what continually rights the ship in global storms.
"flip a switch"
I didn't say it would be easy or fun, that was your assumption.
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