The Great Rebalancing

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

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.

The difference between posted GDP growth rates and real increases in wealth shows up as excess debt. Eventually the imbalances this misallocation creates have to be resolved, and the wealth destruction has to be recognized as debt levels are paid down.

Notice that these new jobs force up the total amount of goods and services produced, so that ordinary workers will see their income increase even as income inequality increases. The rich will do very well, but the rest will do pretty well too. This process, in short, is the essence of “trickle-down” theory.

It is this deleveraging process that is at the heart of the global financial crisis.

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 exactl

This won’t work, except at a tremendous cost. The only solution that can minimize the pain for Spain and the rest of Europe requires that the countries that have suffered most from the unbalanced growth of the past decade band together and force all of Europe, including Germany, to make the necessary adjustments. By threatening to leave the euro to

The global crisis is a financial crisis driven primarily by global trade and capital imbalances, and it has unfolded in almost a textbook fashion.

The increase in inflows will increase the demand for renminbi, so it will increase central bank intervention by exactly the same amount. If you look only at the central bank’s figures, its capital exports will actually rise, and this will seem to imply an increase in the trade surplus, but remember that the increase in capital exports by the People