Roubini setser us external imbalances

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Roubini setser us external imbalances

Otaviano Canuto, World Bank: As the crisis originated in the US financial system — followed by a second dip in the Eurozone — and global imbalances diminished in following years, the issue has faded into the background.

More recently, some signs of a possible resurgence of rising imbalances have returned attention to the issue. We argue here that, while not a threat to global financial stability, the resurgence of these imbalances reveals a sub-par performance of the global economy in terms of foregone product and employment, i.

In addition, we approach how the re-orientation of the US economic policy already announced by president-elect Trump suggests risks of new bouts of tension around global current account imbalances.

For five years now, the International Monetary Fund IMF has produced an annual report on the evolution of global external imbalances — current account surpluses and deficits — and the external positions — stocks of foreign assets minus liabilities — of 29 systemically significant economies. Results for have pointed out a moderate increase of global imbalances, after they had narrowed in the aftermath of the global financial crisis GFC and stabilised later see chart 1.

First, the recovery among advanced economies proceeded in an asymmetric fashion. Stronger recoveries in the US and the UK relative to the euro area and Japan led to divergence in expected paths for monetary policies and appreciation of the dollar and sterling pre-Brexit.

The deficits of the US and UK widened, together with increased surpluses in Japan and both debtor and creditor countries of the euro area see chart 2. Second, the fall of commodity prices — especially oil — transferred income from commodity exporters to importers.

Overall however, it made only a moderate contribution to the narrowing of imbalances. All in all, larger US deficits and augmented surpluses in Japan, the Euro area, and China more than compensated for smaller surpluses in oil exporters and smaller deficits in deficit emerging markets and Euro area debtor countries.

Hence, global current account imbalances widened last year, even if only moderately. WEO definition plus Norway.

Roubini setser us external imbalances

However, a picture of higher global imbalances emerges if one focuses on the rising surpluses of two systemically relevant groups of economies.

Chart 2 exhibits how in the euro area deficits in debtor countries have shrunk in tandem with the maintenance of surpluses in creditor countries slightly increasing in the case of Germany.

While the net foreign asset position liabilities of debtors has not diminished as much, their current account adjustment has added to the soaring surpluses the euro area as a whole runs with the rest of the world. Setser in turn has called attention to how the six major East Asian surplus economies — China, Japan, South Korea, Taiwan ChinaHong Kong Chinaand Singapore — have reverted their post-GFC decline of surpluses and are currently topping even the euro area see chart 3.

Such double trajectory of rising surpluses gives credence to those who have expressed concerns about a revival of rising current account imbalances as a source of risks to the global economy. To address this issue, however, it is worth first reviewing how the profile of current imbalances differs from the one prior to the GFC.

On the one hand, credit-driven, asset bubble-led growth in the US, along with wealth effects, intensified the existing trend of domestic absorption particularly consumption growing faster than GDP.

Roubini setser us external imbalances

This resulted in falling personal saving rates and increasing current account deficits see chart 4. Net Foreign Asset Position 2 right.propagated by the hope that external financing would alleviate the scarcity of saving in developing US to provide financial intermediation relative to that of emerging markets, and the viability of 4 See Roubini (), Setser (), Edwards (, , ), Chinn and Ito ().

In the new environment, the U.S., a former lender, has become a borrower. This article discusses how the privileged position of this new borrower might influence developing countries’ access to international financial markets. The US as a Net Debtor: The Sustainability of the US External Imbalances Nouriel Roubini Stern School of Business, NYU and Brad Setser Research Associate, Global Economic Governance.

2004), "The US as Net Debtor: The Sustainability of the US External Imbalances

In trade we ask: Does (say) China or Mexico benefit from more open trade with the US? Does the US? Along the way, we might examine patterns of trade and their consequences: What products are traded, what firms trade them, and how trade affects factor prices.

dented rise in external deficits in many developed nations, which sparked a discussion about sustainability and the possible dramatic unraveling of global imbalances (see Roubini and Setser () for a particularly striking prediction). The rise in external deficits, however, came hand-in-hand with the explosion in cross-border risky asset.

The concept of “financialization” has informed recent analyses of the contemporary dynamics of monopoly capitalism.

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