The first is our best-case scenario, although for the reasons I have noted it is unlikely to describe conditions today, especially in capital-rich countries like the U.S. The second and third ways are unsustainable because they actually destroy value by increasing debt faster than they increase debt-servicing capacity.

Every month she received interest on her existing deposit, so she took out of her monthly paycheck whatever the additional amount she needed to meet her monthly target. When the People’s Bank of China reduced deposit rates, of course, she had to withdraw a larger amount from her monthly paycheck to make up the difference. This left her with less mo

In that sense the financial repression tax is no different from the currency undervaluation tax or the lagging wage growth tax, except that the taxes are paid by a different set of households in each case and delivered to a different set of producers in each case.

The first is to assume that any nominal increase in the value of the currency is equal to a real increase. It isn’t. Since 2005 productivity has grown faster in China than in the United States, so the renminbi would have to rise by that differential—several percent annually—just to maintain its real relative value.

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.

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

As we showed in chapter 7 German recycling of the German current account surplus through the banking system is not radically different from Chinese recycling of the Chinese current account surplus through the central bank. Policies that restrain consumption growth must push up the savings rate, and if as a result savings exceed investment, the bala

But China also has an extraordinarily high investment rate, the highest in the world, and this is something that is in principle unlikely to be accompanied by a high trade surplus. After all the current account surplus is exactly equal to the excess of savings over investment, and any country with an extraordinarily high investment rate should natu

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.