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Now that the US dollar has slipped to new lows (US$2.00 a £, US$1.50 a €, US$1.00 a C$, US$0.01 a ¥, US$1.00 a Sfr), now that the US has been dissaving for several years and does not seem to reverse course soon, one can be worried was lies in the future. But there is hope.
Take the research of Pierre-Olivier Gourinchas and Hélène Rey, who show that the US is helped in two ways: 1) by its particular position within the international financial system, which allows it to benefit from a significant interest premium, 2) by the structure of US debts and credits, which allow to earn net interest despite having net debt (NBER 11563). They claim also that 31% of necessary external adjustments come "automatically" from such valuation effects (NBER 11155). In fact, there is remarkable stability in the system (NBER 11996).
The future is not so gloomy after all.
Friday, March 14, 2008
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3 comments:
Pardon my ignorance. What are these guys saying?
I would have thought an accountant would understand this: the US is capable of borrowing at a lower rate, due to its position on financial markets (reserve currency and all). Thus being in debt is not so bad.
And changes in the dollar make it easier to repay that debt, as it is valued in ... dollars.
Big deal. Of course borrowing in your own currency makes it easier to reduce the real value of your debt. Charles DeGaulle and Jacques Reuff said this in 1966. I'm asking what's new here? The US can get real resources from overseas which it never has to pay for as long as dollars circulate outside the country. I say again, what's new here? Why does Economic Logician bring this up? In 1973 Nixon embargoed the shipment of soybeans to Japan making the dollar good for nothing.
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