OOPS, I sent the following only to the Rayp, though I think it's probably of more general interest. Glenn Rayp of the University of Antwerp writes: >>... a good reason for reducing the US federal budget deficit would be the balance of payments deficit ... This is comprehensible though. As the U.S. can finance almost any BOP deficit it likes, it is mainly a problem for the rest of the world. As a matter of fact, by reducing the budget deficit, you're solving at your expenses Europe's, if not Japan's problems.<< I don't understand this last point. If the US has a deficit on the balance of trade and on the current account (not on the B/P which is usually close to balanced under floating exchange rates), then it's creating demand for the goods and services of the rest of the world. That is, the US is giving the world Keynesian stimulus, which seems pretty important in an era with so many recessionary impulses (including what I've called competitive austerity programs). If the US suddenly balanced its trade, it would push the world into depression. The non-US world then in effect lends money to the US and receives interest for this loan. The only complaint I can see is that the US fiscal and current account deficits impose unduly high interest rates on the world. But the non-US lenders gain from these interest rates. Maybe I'm leaving something out? Also, I'm not convinced that the US can finance any deficit it wants. The dollar might lose its status as the main world reserve currency. Finally, the question was about balancing the budget, not reducing the deficit. The latter is a more moderate version of the former. in pen-l solidarity, Jim Devine [EMAIL PROTECTED] Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA 310/338-2948 (daytime, during workweek); FAX: 310/338-1950 "A society is rich when material goods, including capital, are cheap, and human beings dear." -- R.H. Tawney.
