Stephen Roach on America’s other 87 deficits
Here are a few excerpts from Stephen Roach’s latest at Project Syndicate:
The United States has a classic multilateral trade imbalance. While it runs a large trade deficit with China, it also runs deficits with 87 other countries. A multilateral deficit cannot be fixed by putting pressure on one of its bilateral components. But try telling that to America’s growing chorus of China bashers.
America’s massive trade deficit is a direct consequence of an unprecedented shortfall of domestic saving…
In the US, there simply is no net saving any more. Since the fourth quarter of 2008, America’s net national saving rate has been negative – in sharp contrast to the 6.4%-of-GDP averaged over the last three decades of the twentieth century. Never before in modern history has the world’s leading economic power experienced a saving shortfall of such epic proportions.
[…]
…The renminbi has, in fact, appreciated by 30% relative to the US dollar since mid-2005. In broad multilateral terms – a far more meaningful gauge because it measures a currency’s value against a broad cross-section of a country’s trading partners – the “real effective” renminbi currently stands about 8% above its most recent 12-year average (1998-2010).
[…]
The ultimate test of any nation’s character is to look inside itself at moments of great challenge. Swept up in the blame game, the US is doing the opposite. And that could well be the greatest tragedy of all. After all, America’s 88 deficits did not arise of thin air.
I suggest you read the whole thing.
Source: America’s Other 87 Deficits – Stephen Roach, Project Syndicate
Most of Americas problems are home grown. Tax policy that makes it cost effective to offshore jobs only accelerates the problems.
“What Valéry Giscard d’Estaing called the “exorbitant privilege” of the world’s reserve currency” I would call The Accidental Marshal Plan. By untethering the dollar from gold in 1971 but leaving the obsolete gold standard bond regime in place repurposed as an interest rate management tool we have left ourselves open to 87 Accidental Marshal Plans imposed on us by trading partners who choose to suppress domestic wages for their own local purposes and centrally accrue the value of the wage suppression in dollar bond holdings. All of these trading partners are more authoritarian than we and all use the amassed wealth of wage suppression and export earnings to entrench local elites. If we quit selling bonds and used a supporting rate on reserves as the main tool to manage our interest rates, our trading partners would loose the ability to force their imports into our markets.
Rubbish. Of the top 9 countries with which the US has the largest deficits in August 2011 only China could be described as authoritarian, and that was second to Canada. The others are Mexico, Japan, Germany, UK, South Korea, Brazil Taiwan and Netherlands. None of which could be described as authoritarian. The UK may have a surplus with the US but has a deficit overall with the rest of the world.
Let the Fed move away from ZIRP and savings rate will go up.
It will also help deflate what remains of any property bubble.
How many of these trade deficits are due to Oil Importation or other raw material importation?
I don’t believe that all deficits are the same. A raw materials import means that you are adding valuing without the cost extraction which is a net grain. While the accounting would show a deficit in trade the total value of the economy create would offset the loss.