Asymmetrical Information

"First, the US accepts the exchange rate policies of everyone else; second, US monetary and fiscal policies are aimed at achieving the economy's non-inflationary potential output. At the real exchange rate set largely by foreign decision-makers, a huge excess demand for tradeable goods and services - and so the trade deficits - emerges."
I believe that's the key statement. My response (and I may well be missing something, so Jane, please elaborate, since I ain't paying for the full ft article): So? It's been pointed out before that our commitment to letting the dollar float (and China's pegged currency) is hurting us. But the decisions we and our gubmint make still matter, no? The excess demand 'emerging' as if not from the conscious decisions of millions of actors, but from the aether, belies the contributions of those decisions. Is he saying that the Fed's commitment to maximizing growth - noting the inflationary brake - means that we CANNOT have it any other way without a drastically different exchange rate system worldwide? That would be quite a contribution to macroeconomics, and I think requires quite a lot of explanation and data to back it up. Or do I need more (or less) coffee?

Very interesting nonetheless. Maybe I will pony up for the ft subscription. Naah.

Just to be clear, I understand him to be saying that given the exchange situation and the Fed's directive to maximixe non-inflationary growth, the economy is inexorably pushed to run deficits. Is that right? I fear that's an apologia of sorts, and it makes me uncomfortable. Explain. Discuss. Correct me.

it's the old problem of a free-market economy dealing with mercantilists and using mercantilist tools to assess our performance. other economies want to "win" by exporting more and saving more. US policy is indifferent to this, and is focused on non-inflationary growth. with emering markets being inhospitable (russia looking back towards czarism/communism, lacro going back to marxism, middle east blowing up, africa being horrid as usual, asia trying to export its way to riches) and weak economies in other 1st world (japan and europe dying, have little to no growth or consumption, trying to export to riches) US will always run a trade and savings deficit.

China and EU are acting like GM and Ford, making too good of an offer to not finance or lease. 0% interest? sure I'll finance the car, buy it 2 years ahead of time. its only a problem because we are all mercantilists at heart, and still think its a zero sum game. we don't worry about New Hampshire's trade deficit or savings deficit compared to New York, and we shouldn't worry too much about the US savings rate or trade deficit.

the US is not trying to export its way to riches, is not managing trade, and follows generally free market principles. we need to make sure that there are no governemnt guarantees and that people know they're on their own, but otherwise there's no big issue. Asia should generate more demand, as should europe, which would neatly solve the problem. but the us can't do anything policy wise to free up AP or EU consumer markets.

Is the problem really that foreigners save too much, or is it that they have too much incentive to place their savings somewhere outside their own country? Latin American savings may be flowing here because Latin American governments are too likely to rob their own people. Asian savings may be flowing here because their stock markets are rigged against small investors. Europeans may be seeking a higher rate of gain than their stagnant economies provide, dodging ridiculously high tax rates, or simply worried that by the time they start spending their pension funds, their own country might be under sharia law...

So, if the rest of the world is saving too much, then there must be a reason or reasons for that (and presumably, that don't apply to the US). Do they anticipate bad times in the future against which they need savings? Do they anticipate that they will need large personal savings to deal with old age? Do they anticipate extensive deflation, so are deferring consumption? Have their present incomes risen so rapidly that they are misjudging their future income? Are their export-oriented economies mismatching local production and local demand, so they can't increase local consumption enough?

This looks to me like another in the long set of excuses that Ben "Helicopter" Bernanke has made for the ongoing debasement of the dollar. Unhappily this article ought to be tied in with the housing bubble thread, since the housing bubble arguably is inflated by stunningly low interest rates.

Another question that nobody wants to contemplate has been floating around: what if Japan is what depopulating industrial countries naturally look like?

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