Will Obama’s Stimulus Leak Abroad?

By Reuters Staff
March 3, 2009

Justin Fox has an interesting breakdown of global stimulus packages by country: the US, China, and Spain have big ones, while the rest of the world just doesn’t seem to be trying so hard. He writes:

The concern is that if we in the U.S. do lots of stimulating and other economies don’t, much of the money will just leak out overseas as we spend on imports but others don’t buy our exports.

He’s right, and no amount of "buy American" provisions in the bill will prevent money from leaking overseas in a globalized economy. Liquidity, you might say, always finds its level. At the margin, it does seem that countries such as the UK are freeloading on the US bailout — both in terms of the stimulus package and in terms of the bank bailout.

Here in London, the streets are still vibrant and the restaurants still full: there’s lots of talk of massive pain, and the stock market is down a whopping 64% or so from its highs, in dollar terms. But somehow none of this is obvious, at least to my eyes: the main thing I’m feeling here is just relief that finally I can afford to visit my home country again, after being priced out for years when the pound was worth about $2: it’s now $1.40.

At those levels, Brits aren’t going to be buying much in the way of US exports with or without a stimulus package. On the other hand, it’s worth noting that the main British export of late has been financial services, and there’s not a huge amount of demand for that Stateside at any exchange rate. But maybe Britain can start working on its tourist trade: I can highly recommend Wheelers Oyster Bar in Whitstable if you want to eat some astonishingly wonderful seafood at a quintessentially English seaside town. Make sure to reserve in advance: it fills up quickly, and the pound is weak!

Reprinted from Portfolio.com

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