The Great Rebalancing

So the problem is not lack of capital but rather that Berlin does not want to take on Spanish risk, mainly because it believes that the chances of a Spanish default are too high, and that guaranteeing Spanish obligations would undermine German’s own creditworthiness. What Berlin really wants is for someone else to lend to Spain and so take on the r

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.

For much of the past three decade we have seen the opposite, so the household share of the rapidly growing pie has contracted while the state share has expanded. This must be reversed.

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.

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.

It may seem surprising to argue that Germany—that seeming paragon of thrift and hard work—is at least as vulnerable to the European crisis as Spain, but this would not be the first time in history that a country with relatively low debt and a high trade surplus thought itself invulnerable in the early years of a global demand contraction, only to s

Because it will be almost impossible to do these quickly, as a stopgap countries with productive investment opportunities must seize the initiative in a global New Deal to keep demand high as the structural distortions that force up the global savings rate are worked out.

This is almost total nonsense. The only possible way it could be true is if the amount of intervention in the renminbi was unaffected by the price level, and this is certainly not the case. If it were, the People’s Bank of China should anyway immediately raise the value of the renminbi substantially in order to improve its terms of trade at no cost

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.