MacroScope

Rebalance or else, IMF says

August 18, 2009

The International Monetary Fund has been warning for years about the risk of global imbalances — namely huge U.S. current account deficits and surpluses in China. Today its chief economist offered a grim view of how the economy might suffer if the rebalancing act fails.

Olivier Blanchard says unless the United States can refocus its economy more toward exports and China more toward┬áimports, the U.S. recovery will probably be anemic because American consumers aren’t going to quickly┬árevert back to their pre-crisis free-spending ways.

And if the recovery is anemic, there will no doubt be intense political pressure for more stimulus, particular in 2010 when most members of Congress face re-election.

“Were that to happen, one can imagine various scenarios: political pressure may be resisted, the fiscal stimulus phased out, and the U.S. recovery would then be very slow. Or fiscal deficits might be maintained for too long, leading to issues of debt sustainability, worries about U.S. government bonds and the dollar, and causing large capital flows from the United States. Dollar depreciation may take place, but in a disorderly fashion, leading to another episode of instability and high uncertainty, which could itself derail the recovery,” Blanchard wrote in an article released by the IMF.

Blanchard builds a case for rebalancing being in everyone’s best interest, including China’s. What’s your take? Will China and the United States get this right?

Comments
5 comments so far | RSS Comments RSS

McKinnon at Stanford offers a refreshingly contrarian view. To hell with rebalancing, he says, China should go back to a fixed exchange rate. http://papers.ssrn.com/sol3/papers.cfm?a bstract_id=1440263

Posted by Pedro | Report as abusive
 

america exports war and bioterrorism through the drug companies. america needs to start taxing the vaccines and bombs it exports. america needs to start taxing the heroin that the cia exports from afghanistan. america needs to start taxing the oil it exports from iraq.the u.s. military needs to send congress to jail, repeal a lot of legislation that has shut down small business in favor of global corporations, impose trade tariffs on outsourcing and off-shore corporations doing business in the u.s., and restore the manufacturing, services, drilling, and small to medium agriculture in america.

Posted by anonymous | Report as abusive
 

The US can’t “rebalance” the economy because the industrial base has been destroyed and replaced with third-world slave labor. The IMF knows this. The IMF also knows that the general public are idiots to be told what to think, for example, asking to be on the hook for even MORE debt to be put in the pockets of international bankers and European royalty. The IMF, and the people they work for should be put in prison.

Posted by Timothy Bledsoe | Report as abusive
 

The U.S. has been intentionally bankrupted. This is the result of unbrdled great by international finance with help from congress. Total control of all resources through theft.

Posted by robert | Report as abusive
 

Ban the Federal Reserve. Put money creation back in the hands of the people (a truly representative government)by creating a government bank for the purpose of money creation. Use government created money to rebuild a sustainable and viable economy working toward full employment. Rebuild the economy. Create the majority of economic activity to be within the country itself and support small, independent businesses. That’s just for starters.

Posted by Don | Report as abusive
 

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