New Era

US Trade Deficit

Martin Wolf




Interesting times ahead for all
Rolf Englund, Letters to the Editor, Financial Times, November 6, 2000

Sir, Should the US economy be a lodestar for us all? That was the question that Martin Wolf (November 1) wrote about, as always most interesting. For some reason he did not this time mention the US trade deficit. Of course it is a lot easier to increase production, employment and the budget surplus if you can increase total demand without the constraint of the trade balance, or rather the trade imbalance.

The true believers in the New Era argue that the american economy can grow faster without inflation than before. Even if that should be true there are two points to be made by us sceptics. First, the NAIRU ceiling has only been moved, not removed. Second, it is not only the rate of growth that might be too high. With the large and unsustainable trade deficit it is also the level of demand and GNP that is too high.

When that level has to be adjusted we will all living in interesting times.

Click for pic of article

To bring about a substantial reduction in the external deficit without a deep recession, the US needs a huge change in internal relative prices.
About Maurice Obstfeld and Kenneth Rogoff The Unsustainable US Current Account Position Revealed
Martin Wolf Financial Times 1/12 2004

From boom to trust
Barry Riley, Financial Times, November 4, 2000

From "Prepare for a hard landing"
by Stephen Roach, Financial Times, November 23, 2000
The writer is chief economist at Morgan Stanley Dean Witter