Greenspan on U.S. foreign balance

[Bradford DeLong]

>Brad DeLong wrote:
>
>>>This is one of those rare instances where somebody important 
>>>worries about this in public. The orthodox thing for AG to do 
>>>would be to tighten policy and restrain U.S. growth rates to 
>>>reduce imports.
>>
>>Under a gold standard, yes.
>
>Or for ordinary countries (i.e., nonsuperpowers) under the present 
>regime. Ask Mexico or Thailand.

A better solution is for the local economic superpower (U.S. for 
Mexico, Japan for Thailand) to boost its own demand...


>>Since 1980, those countries that have gotten into big trouble from 
>>current account deficits have done so because their trade deficits 
>>have cumulated into large foreign currency-denominated debts that 
>>have meant that home currency depreciation does not write down the 
>>value of the debt. Thus whenever the currency depreciates, the home 
>>currency value of foreign debt becomes crushingly large. America is 
>>going to be able to avoid that (at least, America is going to be 
>>able to avoid that if the Federal Reserve and SEC do their job and 
>>keep both eyes on the derivative books of major (and minor) 
>>financial institutions).
>
>That's a very big if. Who knew, or more accurately cared, that Enron 
>ran a derivatives book larger than most banks?

The Treasury, the SEC, and the Federal Reserve care. I don't know 
whether they knew. I hope they did...

Brad DeLong