Tuesday, August 4, 2009

A Big Obstacle Rebalancing Global Imbalances

The widely accepted assertion of macro theory which states that after a public budget deficit, a currency appreciation will follow can help to know when stop spending. Several mechanisms work and translate in to a -temporal- wealth effect for residents of the named country. This certainly could not contribute to an export rising.
This having said, it appears now that the future budget deficits of the U.S.' economy will play against economic growth. The latter is easily infered from Martin Feldstein's statement that even though savings in the U.S. are rising and could replace foreign one -known as capital inflows- there will not be a dollar depreciation which is a necesary condition for having economic growth and a current account re-balance.
Taking as a -disputable- truth that the increase in spending has helped improve the economic outlook world-wide, the effect pointed by Feldstein may perfectly work as a sign to know when to stop spending and let the economy re-balance by itself.

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