Sam Gindin wrote:
On the other hand, note that it is not necessary for the US to correct the trade deficit to calm financial markets (which are in any case not panicking in spite of the nervousness some people are expressing). It is only necessary that the deficit stop rising and start slowly falling - which IS possible. Moreover, we need to recognize that trade deficits mean something distinct in the context of empire; in the late 70s people were freaking at any deficit, yet almost a quarter century of US trade deficits have now been tolerated and accepted because financial markets learned that this was possible (re the US).
Sam, you know I share your skepticism about crises, but you're underestimating the importance of the financing side of this. The financial markets learned it was possible because they made it possible - but today's U.S. c/a deficit isn't being financed by the markets, it's being financed by the central banks. And there are signs that the CBs are losing patience: weak presence at the last bond auction; signs of a shift towards the euro in reserve allocation in Malaysia, Russia, India, etc.; noises coming out of China that they're losing some ardor for dollar reserves; etc. Past performance is no guarantee of future results!
Doug
