OPE-L message, Re: [OPE-L] Trade Deficit Disorder

The long term trade deficit is not just a US phenomenon. The UK has

had a similar long term deficit. These used in the 60s and 70s to cause

major crises, now they don’t seem to do so.

From: OPE-L [mailto:OPE-L@xxxxxxxxxxxxxxxx] On Behalf Of Alejandro Valle Baeza
Sent: 20 March 2006 02:56
To: OPE-L@xxxxxxxxxxxxxxxx
Subject: Re: [OPE-L] Trade Deficit Disorder

Jerry Levy wrote:

From "How Scary Is the Deficit? by Brad Setser et al.

via Alejandro:

>>>>>>>>>>>>>>>>>>

Levey and Brown make three basic arguments. First, they claim

that foreign central banks will probably continue to finance U.S.

deficits. Second, they predict that even if foreign central banks do

pull back at some point, private investors will step in. And finally,

they assume that even if this financing does not materialize, a dollar

crash would hurt Europe and Japan more than it would hurt the

United States. Unfortunately, there is a good chance that all of these

assumptions will prove false. Foreign central banks may well stop

financing growing U.S. deficits, private equity investors might not

take their place, and the resulting adjustment process would prove

quite painful for the United States."

>>>>>>>>>>>>>>>

Alejandro -- for how many consecutive years have you expected the

US economy to crash? Why hasn't it?

In solidarity, Jerry

Hi Jerry, since I was born. (It is a joke)
I sent to ope-l messages about a US economy crash possibility in 2000 or so. I have articles discussing this issue since 1989 or so. The crash possibility had pointed out by quite different economist: Roubini (coauthor in Setser article) is an economist from establishment, by example. The main reason for predicting a crash is that disequilibrium can not remain for a long time and there are not balancing variables for correcting such disequilibrium in a smoothing path. Take, by example, stocks bubble. The S&P index is over valuated despite 2001 correction and you have house price bubble in addition to stocks overpricing. Hence, the US economy is in worst shape than in 2000. As disequilibrium’s increase; necessary adjustments increase too. Hence a crash is more likely now than in 2000. However there are many different ways of adjustment: a crash, or several recessions in few years, or stagnation during several years, as in Japan happened.
In my view Marxist researchers need to analyze the possibility of a US crash (or any other adjustment process) and to be prepared for explain it; if it happens. If you look at rate of profit US economy is better than in 1982 by far. Hence, why could occur a crash now and it did not happen in 1982? Even a great crash like 1929 have not occurred yet; it do not mean a great crisis can not happen again. I think that you and Rakesh are right pointing out US economy asymmetries with rest of the World. However, certainly, US economy needs to be adjusted despite such asymmetries.

Cordialmente
Alejandro

Posgrado Facultad de Economía

Av. Universidad 3000 Circuito interior

México 04510, DF México

Tel. 55-56222148 fax 55-56222158

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