Re: Re: Re: Re: Re: Re: Re: beginning of the end?

[Peter Dorman <dormanp@xxxxxxxxxxxxx>]

I'm aware that "the rest of the world expands" is the preferred solution to
the US current account deficit (and capital account bubble).  Has anyone
calculated the rate of expansion that would be required to do this, without
drastic changes to the value of the dollar, given the US price and income
elasticities of US imports and exports?  (Say Wynn Godley?)

Peter

(Incidentally, it is important to keep in mind the distinction between the
trade balance and the current account balance.  Suppose that the return on
foreigners' net capital position is equal to the rate of growth of US GDP.
Then exactly balanced trade is required to maintain the ratio of external debt
to GDP: there would be a current account deficit equal to the returns on net
assets, etc.  Of course, it is likely that the rate of return will be greater
than that, and so we would need a trade surplus to maintain the balance.  I
mention this because, in the popular literature, it is often said that all we
have to do is stabilize our current account deficit relative to GDP, and this
would permit a trade deficit only slightly less than we see at present.  This
assumes that our net capital position doesn't matter.)

In any event, my original question was, if other economies fail to inspire
investor confidence, can the dollar bubble still burst?

Dennis Robert Redmond wrote:

> On Sat, 14 Oct 2000, Peter Dorman wrote:
>
> > secure; they were the targets of subsequent runs.  Is there some way
> > to think about the pricking of the dollar bubble in the absence of
> > resurgent confidence in some other currency?
>
> Sure -- vigorous expansion in the EU and East Asia, which would pull in
> lots of US exports and allow a non-crash-inducing adjustment of the US
> current account balance. And don't forget, the Eurobourgies and their
> Asian equivalents already staged two of the most massive bailouts in world
> history in the 1990s: (1) 500 billion EUR for Eastern Germany/Eastern
> Europe, and assorted EU banks; and (2) maybe 750 billion EUR for SE Asia,
> plus assorted Japanese banks. Bubble speculation is the flip side of
> bailout Keynesianism.
>
> -- Dennis