“America above average growth was possible thanks to the
FED printing money like hell.”

No, the deficits have been financed by borrowing. The
Treasury issues bonds and investors, often foreign governments,
and in particular China, buy them.

It’s always been obvious what’s going on. People always knew
the bonds would be paid back in dollars worth less than what
they were bought with. If governments have been willing to pay
for these bonds then it’s because the perceived alternatives
seemed worse. What would have happened if China hadn’t bought
so many of these bonds the last few years?

Then the dollar would have fallen already. US exports would
have been considerably more competitive and imports correspondingly
less. The U.S. trade deficit today would be much smaller.
Chinese economic growth would not have been quite so
rapid. The U.S. might have kept a larger manufacturing base than
it has today. Much of europe might have gone into recession,
and/or a deeper recession than already experienced.

The point is no one has been fooling anybody. Unless
they want to be fooled. Every proposed path has consequences
good and bad. The big U.S. trade deficit has been
propping up the world economy but the costs of maintaining
that deficit are becoming unbearable.

Thanx Alan!

if history is anything to go by, the USA will, at some point, ‘become Argentina’. That is to say, it will have had its run, but some other nation will eclipse it.

And the world’s economy won’t necessarily collapse as a result, so long as something else can replace the USA as the world’s dominant economic superpower. Perhaps this will be the EU (though I am sceptical of it); perhaps it will be China or India. Or perhaps it might be (say) Brazil; a laughable idea today, to be sure, but America’s run might well continue for another century or so, and who can say what Brazil will be like at that point? (Who would have imagined China or India as economic BSDs a century ago?)

This is not criticism of America, much less anticipatory gloating. But nothing lasts forever. If America’s hyperpuissant star should one day decline, Spain and France and Britain (to say nothing of Rome and Macedonia) may be able to offer their old friend tips on adjusting to diminished status. In the mean time, I do hope its run will continue for a while. China or India might have the potential someday to displace the US economically. But I should not like to see them do so before they have evolved very considerably politically (especially in the case of China, but also to some degree in India’s case as well.)

There’s an equal danger in being dependent on trade surpluses. You simply can’t let your best customers go broke.

Maybe I’m going to write something about the German government’s council of economic advisor’s autumn report. They’re cautiously optimistic and are now bashing their natural allies in the opposition. That’s good news for economic politics and policy. Now the CDU/CSU will no longer be able to try to block in the upper chamber and blame it on the federal government. The blame is increasingly on them. On Tuesday, their health reform proposal got bashed extensively by the employer association… they will have to be less smug in the future.