Re: [OPE-L] Trade Deficit Disorder

From: Alejandro Valle Baeza (valle@SERVIDOR.UNAM.MX)
Date: Sun Mar 19 2006 - 21:55:47 EST

Jerry Levy wrote:

> From "How Scary Is the Deficit? by Brad Setser et al.
> via Alejandro:
> >>>>>>>>>>>>>>>>>>
> Levey and Brown make three basic arguments. First, they claim
> that foreign central banks will probably continue to finance U.S.
> deficits. Second, they predict that even if foreign central banks do
>  pull back at some point, private investors will step in. And finally,
> they assume that even if this financing does not materialize, a dollar
> crash would hurt Europe and Japan more than it would hurt the
> United States. Unfortunately, there is a good chance that all of these
> assumptions will prove false. Foreign central banks may well stop
> financing growing U.S. deficits, private equity investors might not
> take their place, and the resulting adjustment process would prove
> quite painful for the United States."
> >>>>>>>>>>>>>>>
> Alejandro -- for how many consecutive years have you expected the
> US economy to crash?  Why hasn't it?
> In solidarity, Jerry

Hi Jerry, since I was born. (It is a joke)
I sent to ope-l messages about a US economy crash possibility in 2000 or
so. I have articles discussing this issue since 1989 or so.  The crash
possibility had pointed out by quite different economist: Roubini
(coauthor in Setser article) is an economist from establishment, by
example.  The main reason for predicting a crash is that disequilibrium
can not remain for a long time and there are not balancing variables for
correcting such disequilibrium in  a smoothing path. Take, by example,
stocks bubble. The S&P index is over valuated despite 2001 correction
and you have house price bubble in addition to stocks overpricing.
Hence, the US economy is in worst shape than in 2000.  As
disequilibrium's increase; necessary adjustments  increase too. Hence a
crash is more likely now than in 2000. However there are many different
ways of adjustment: a crash, or several recessions in few years, or
stagnation during several years, as in Japan happened.
In my view Marxist researchers need to analyze the possibility of a US
crash (or any other adjustment process) and to be prepared for explain
it; if it happens. If you look at rate of profit US economy is better
than in 1982 by far. Hence, why could occur a crash now and it did not
happen in 1982? Even a great crash like 1929 have not  occurred yet; it
do not mean a great crisis can not happen again.  I think that you and
Rakesh are right pointing out US economy asymmetries with rest of the
World. However, certainly, US economy needs to be adjusted despite such


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