Americans tend to disregard history. Henry Ford declared bluntly, “History is bunk,†while Gore Vidal calls the U.S. “the United States of Amnesia.†Usually, this disregard has few consequences, but sometimes not. That may be so with investing in China, where history suggests profits will be far below expectations, possibly making those investments fool’s gold. Read the rest of this entry »
Investing in China: Fool’s Gold?
January 15th, 2008The Subprime – Trade Deficit Connection
January 7th, 2008In recent months the U.S. subprime mortgage crisis has been rippling outward affecting other countries. British banks have made large loan loss provisions and there has been a run on the Northern Rock bank. German banks have incurred similar losses and Germany has suffered two large bank failures. European banks have also become leery about lending to each other, forcing the European Central bank to infuse emergency liquidity. Now, Japan’s banks are feeling the heat. Read the rest of this entry »
Democrats and the Meaning of Change
January 2nd, 2008Many people now believe the United States cannot afford to continue with the policies of the Bush-Cheney administration. Those policies have undermined global support for America – a key part of national security – and have produced an economic expansion that has bypassed working families and looks as if it will bequeath years of house-price pain. Read the rest of this entry »
Don’t Bet Against the Dollar
December 12th, 2007The global economy runs on the dollar, and that isn’t about to change. Today the world’s central banks hold about two thirds of their reserves in U.S. dollars. Most commodities are priced in American currency, and much of world’s trade is invoiced in dollars as well. The dollar is the lifeblood of the international system. Read the rest of this entry »
Through the Looking Glass: Saving Glut or Demand Shortage
November 7th, 2007The old saying is that “If you only have a hammer everything looks like a nailâ€. For economists, the hammer is “saving†and a host of problems are reduced to questions of saving. Nowhere is this clearer than discussions of the U.S. trade deficit and global financial imbalances, which are often explained as a saving problem. Unfortunately, this focus on saving distorts understanding and distracts from the real challenge of creating mass consumption markets in developing countries. Read the rest of this entry »
Exchange Rates: There is a Better Way
October 31st, 2007The world economy is poorly served by the current system of exchange rates. That system has contributed to today’s global financial imbalances, which are widely viewed as posing significant economic risk. These imbalances have also created political tensions between countries over how to adjust them, and within countries over job losses. Exchange rates matter more than ever under globalization, which means the world needs a better system. Read the rest of this entry »
Triangular Trouble: the Euro, the Dollar and the Renminbi
October 15th, 2007For the last several years the euro has been appreciating steadily against the U.S. dollar. Given the Chinese renminbi and other East Asian currencies are pegged to the dollar that means the euro has been appreciating steadily against all. This spells trouble for Euroland, and it suggests European policymakers should join with the U.S. to address the global problem of under-valued currencies. Read the rest of this entry »
The Flaws in Rubinomics
October 9th, 2007With Senator Hillary Clinton firmly cemented as the front-runner for the Democratic Party’s nomination, Rubinomics—named after former Treasury Secretary Robert Rubin, who shaped economic policy under President Clinton—has re-emerged as a critical issue. This is because Senator Clinton has firmly embraced it. Rubinomics rests on faulty economics and embodies bad politics. Progressive Democrats and the nation need to understand this. Here’s an explanation. Read the rest of this entry »
Jack Welch’s Barge: The New Economics of Trade
October 1st, 2007The classical theory of comparative advantage has driven US trade policy for the past fifty years. That policy, in combination with technical innovations that have lowered costs of transportation and communication, has opened the global economy. Yet paradoxically, this opening has rendered classical trade theory obsolete. That in turn has left the US economically vulnerable because its trade policy remains stuck in the past and based on ideas that no longer hold. Read the rest of this entry »
Inflation, Chinese Style
September 19th, 2007China’s government recently announced inflation hit a ten-year high of 6.5 percent in August. This increase in inflation is directly related to global trade imbalances, yet China is trying to control inflation without addressing that problem. That carries two consequences. First, it is doubtful this strategy can work, which likely augurs rising Chinese inflation. Second, the strategy aims to shift the onus of global trade adjustment on the U.S., which may come back to haunt China and the global economy. Read the rest of this entry »