Monday, January 17, 2011
Bigger Trade Deficits Coming?
In this article, the author David Leonhardt discusses how Joseph Gagnon who is a former Federal Reserve economist explained that the world's financial imbalances such as China's trade surplus and the United States trade deficit, and that it will most likely return to record levels in the soon future. It also discusses to avoid of global imbalances, economies with current deficits need to cut their fiscal deficits more than they are projected, and the account surpluses should reduce financial outflows.
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2 comments:
This article raises a very key issue regarding current deficits and surpluses. If China continues to devalue their currency in order to increase exports(Surplus), then prices are going to continue to rise and they will experience large inflation. With the focus of increasing net exports, China is missing out on many other key economic factors that will play a large role in shaping their economy in the long run. In order for countries such as the U.S. to combat future deficits, Mr. Gagnon suggests keeping interest rates low. This would stimulate investment which would help drive GDP up and hopefully lead to an increase in demand for our products, or in other words an increase in exports.
Good aticle about a very current topic. As Tim has said, china is going to experience huge inflation to continue this surplus growth that entails exporting to everywhere in the world, and not selling goods domestically. These unreal export numbers that contribute to the US trade defecit aren't sustainable. China and the US need to buckle down and start producing and selling goods and services within their own countries to create some real growth,not just this inflationary trade game.
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