The Great Rebalancing

First, it allows the United States to consume and borrow well beyond its means, as foreigners acquire U.S. dollars in exchange for goods. Second, because foreign governments must buy U.S. government bonds to hold as reserves, this additional source of demand for Treasury bonds lowers U.S. interest rates.

That is why it is probably better for policymakers to target trade surpluses rather than just the currency, or just interest rates, or just wages, or just taxes, or just direct subsidies, or just any of a dozen factors.

Second, the decision by countries like China to buy U.S. government obligations is not a discretionary decision that can be made or unmade at will. Remember that the People’s Bank of China does not purchase huge amounts of U.S. government bonds simply because it has a lot of money lying around and doesn’t know what to do with it. Its purchase of U.

its intervention in the currency or in interest rates and credit. In that case we would be in a beggar-thy-neighbor world, and in that world global unemployment always rises.

“late 19th Century imperialism rested above all on capital exports.

In fact I will argue that excessive use of the U.S. dollar internationally actually forces up either American debt or American unemployment. It is more of a burden for the United States than a privilege.

Very low lending and deposit rates create a powerful mechanism for using household savings to boost growth by heavily subsidizing the cost of capital.

the game stopped. The key point here is that all other things being equal, rising income inequality forces up the savings rate. The reason for this is pretty well understood: rich people consume a smaller share of their income than do the poor.

A devaluation will most certainly cause a shift in Greek consumption levels by changing the real value of household income. Depending on how the devaluation takes place and what other steps the Greek government takes, the impact on the trade deficit will be positive and fairly predictable—even if it is true that Greece cannot produce anything it im