In today's environment of weak global demand, there has been little appetite among any major economies for the excess production and savings of these major surplus nations, but the absence of capital controls has made the United States the default adjustment for
global capital imbalances.
Not exact matches
Rather than intervene directly, only to undermine
global trade and worsen these
imbalances, Washington must address the role the U.S. plays in absorbing
global capital.
Perhaps it makes sense to conclude with the more general observation that changes in the size of
global capital flows and the accompanying
imbalances increase the importance of sustaining the credibility of monetary policy, because they increase the costs of a loss of credibility or a negative shock to credibility.
Attempts to export its excess savings can only lead to one of three outcomes: A)
global growth rises because Europe's savings are all directed at developing countries with significant infrastructure investment needs and insufficient
capital, B)
global growth drops sharply,
global unemployment rises, and China's adjustment becomes all but impossible, C) international trade and
capital flows collapse in a repeat of the 1930s, so that Europe is forced to resolve its savings
imbalance either by a massive increase in unemployment or a wave of sovereign defaults.