by Michael Pettis Europe’s underlying problem is not budget deficits or even unsustainable debt. These are mainly symptoms. The real problem with Europe is the huge divergence in costs between the core and the periphery – in the past decade costs between Germany and some of the peripheral countries have diverged by anywhere from 20% …
Tag Archives: trade surplus
More Unwise Trade Intervention Likely
by Michael Pettis Last week’s Senate bill on Chinese currency intervention predictably enough brought out all the same old arguments about international trade, and just as predictably has hardened the opposing positions in the debate. Unfortunately the difference between a good outcome, intelligently negotiated, and a bad outcome, is pretty large, but with each side …
Chinese Inflation and the Impact on the U.S. Economy
There is a possibility that protracted inflation in China could contribute to a curative effect on the negative current account balance of the U.S. However, the complexities involved do not make that outcome a foregone conclusion. Part of the impacts will involve increased costs for imported goods in the U.S. and another could be an increase in U.S. exports and improvement in American wages. Prof. Chinn points out some of the complex trade-offs that impact the ossible outcome scenarios.
China Stops Buying U.S. Debt? Could be a Good Thing
If the US wants foreigners to “lend” it more money, all it has to do is engineer a larger trade deficit. If it wants to reduce foreign lending, it must have a smaller trade deficit. That’s pretty much all there is to it. So warnings about what bad things might happen to the US if China stops buying US government bonds are no different that warnings about what bad things might happen to the US if its trade deficit contracts.