Tuesday, April 19, 2005

More on America's Imbalances...

The Economist talks up the point that I have blogged about recently, warning that America's trade and budget deficits put the world economy in a precarious position. According to the newsmagazine, while world finance ministers, who met in Washington recently, were fretting about the high price of oil, they were ignoring the distortions caused by America's twin deficits.
This calm may explain why the world's finance ministers have done so little to wean themselves off their addiction to American-led growth and why they spent so much of their time in Washington fretting about oil. That is a pity, for while the oil price seems to be the most imminent risk, the size and rate of growth of the global imbalances are the real reason to worry. And as Rodrigo Rato, the head of the IMF, warned at the weekend, the time to address these imbalances is now, when good economic conditions -- in America, and globally -- can ease the pain of the transition.

Update: Paul Volker also recently threw his considerable intellectual weight into the ring on this issue in the Washington Post. I'll try to find a link.

Update Two: Here's the link.

2 comments:

CTK said...

And if you want even more fodder on the topic, stop by www.prudentbear.com every now and then. Stephen Roach, Doug Noland, and Bill Gross periodically weigh in with very good articles.

(Throwsize) We're effed. (/Throwsize)

Throw said...

I shudder as I read stuff like "And as Rodrigo Rato, the head of the IMF, warned at the weekend, the time to address these imbalances is now, when good economic conditions".

No one seems to realize that the "good conditions" are a direct consequence of the inflation that has created the imbalances. The minute the flood of money from our shores ceases, and the imbalances correct, we'll be staring the worst global recession since the 30's squarely in the face.

There's no way around it.