> Still, massive current account imbalances mean
> that the surplus countries are holding an ever growing share of their
> wealth in the deficit countries, a process that cannot go on forever;
But the Japanese are in no position to face massive retaliation if they start selling off Treasuries. They could be thrust into full scale depression if the US cuts off its market in retaliation; anyways, since internal Japanese demand is not strong enough, they need an export surplus with the US, which means they must export yen. Their utter dependence on the strength of the US market makes things a bit different than in the mid 80s, no? Anyways, everyone needs dollars for oil, arms, the specialized capital goods the US monopolizes, intl transactions generally--so why can't the country with the intl reserve currency and imp tech monopolies run such massive imbalances?
Perhaps there is another reason why pressure won't build for a weaker dollar within the US itself as in the mid 80s. It seems that in 85 the Reaganites allowed Bergsten and friends to engineer the dollar devaluation in order to fend off protectionist pressure building in the Congress. Today the democratic swindle is such that American labor finds little protection in even legislative bodies, already having lost--what?--500,000 mfg jobs this year. With labor on its back and unable to pressure democratic politicians to lend protection, the American ruling class does not have to accept a dollar devaluation as a compromise against protectionist trade legislation.
If the Japanese have to keep exporting yen to subsidize their export surplus on which they crucially depend given the internal collapse of accumulation and if US capital overall needs the supply relief from cheap imports, no matter the dislocations imposed on the US working class thereby, and if the Euro never really takes off, why not continuing American current account deficits with a strong dollar? Will there be a repeat of the Plaza dollar devaluation? It seems to me not. These currency politics are very complicated (there is also the question of the relation of the dollar to currencies other than the yen and mark--where does that stand today in historic terms?), yet another reason why I am here on LBO to get some understanding. Thanks Michael P for this lucid piece by Krugman.
> What will work is radical monetary expansion in the demand-constrained
> economies - Japan definitely, maybe also Europe if necessary.
Do people agree with this? What contradictions would it bring forth?
yours, rakesh