We fail to think in terms of the overall system.

In this case, however, the liabilities generated by the inflows are not associated with an increase in domestic asset growth, and so foreign obligations rise at an unsustainable pace.

The claim that there can be no employment impact in the United States of a contraction in Chinese trade could be conceivable only if all trade settled only on a bilateral basis.

In fact we have already seen countries like Japan and Korea complain loudly when large foreign central banks shift out of dollars and into their currencies, and the European response is likely to be no different.

Some employed households with secure jobs will be worse off, of course, because they will be able to buy less with their income, but because the country suffers from high levels of unemployment, those losses are likely to be more than offset by employment gains.

All subsidies must be paid for, of course, and it is usually, although not always, the household sector that pays.

Conversely, if foreign purchases of government bonds lowered a country’s interest rate, the higher a country’s current account surplus, the higher its interest rates should be. Why? Because of the need for the capital and current accounts to balance: the net amount of foreign purchases of U.S. government bonds and other U.S. dollar assets is

This was a direct challenge to a core thesis of the classical economists: “Savings are always beneficial because they allow greater accumulation of capital.

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