We need to find a fairer way of providing Goods and Services to the rest of the people on Earth.Cryptocurrencies and/or Gold Standard of money....maybe the answer to fight hyperinflation caused by too much printing of paper/fiat currencies by Governments and Central Banks all over the World. (https://nomorefiatmoneyplease.blogspot.com)
China's IMF ambitions send warning signal to yuan short-sellers
[NEW YORK] There are plenty of things luring short-sellers to the Chinese yuan right now.
Growth is slowing. Capital is flowing out. And by some measures, the yuan is the most overvalued currency in the world.
Yet there's one big reason not to bet against it: The People's Bank of China is on the other side of the trade.
Chinese policy makers will do whatever it takes to ensure a stable exchange rate before the International Monetary Fund starts discussing the possibility of adding the yuan to the ranks of the world's reserve currencies in May, according to Barclays Plc and DBS Group Holdings.
They've already been tapping their almost US$4 trillion in foreign reserves to do this, spending an estimated US$33 billion in the first quarter to halt a slump that had sent the yuan to a more than two-year low in March.
While a weaker exchange rate would help boost exports and shore up the slumping economy, it'd undermine China's push to make the yuan a suitable currency for international trade and finance.
The inclusion in the IMF's so-called Special Drawing Rights is the centerpiece of President Xi Jinping's ambition to challenge the hegemony of the dollar and a global economic order dominated by the US and Europe.
"They definitely won't allow a yuan collapse," said Nathan Chow, a Hong Kong-based economist at DBS who sees a 90 per cent chance the yuan will be included in the SDR basket this year. "It's unwise to have sharp depreciation when you want others to hold the currency in their reserves."
TAPPING RESERVES
The yuan halted its four-month decline in March as Premier Li Keqiang and Central Bank Governor Zhou Xiaochuan expressed publicly their hopes for the yuan's inclusion in the IMF programme. The currency has erased this year's loss of as much as 1.2 per cent, trading at 6.2032 per dollar Wednesday after falling to as weak as 6.2763 on March 3.
The PBOC didn't immediately respond to a faxed request for comment.
The monetary authority is dipping into its foreign reserves to offset capital outflows and stabilize the yuan. Economists surveyed by Bloomberg estimate that the stockpile declined US$33 billion in the first quarter, extending the drop since June to US$183 billion.
SDR REVIEW
Created in 1969 to support the Bretton Woods system of fixed exchange rates, the SDR basket consists of the dollar, euro, yen and British pound, serving to supplement nations' official foreign-exchange reserves. The IMF will conduct the twice-a-decade review of the currency basket in October after an informal briefing in May.
"Ahead of the SDR review later this year, China will refrain from devaluing the yuan," Barclays analysts led by Mitul Kotecha and Jian Chang wrote in an April 2 note.
The Chinese currency, which became the world's fifth most- used in December, will remain stable this year, ending 2015 at 6.23 per dollar, according to median forecast of 58 analysts surveyed by Bloomberg.
While in the minority, some strategists including Albert Edwards at Societe Generale SA have called for a devaluation of the yuan to spur growth. Royal Bank of Canada predicts the currency will weaken about 7 per cent by year-end to 6.7 per dollar. Deutsche Bank AG's strategists are advising clients to sell the yuan using options.
GETTING EXPENSIVE
China's economic growth rate slowed to 6.3 per cent in February, below the official target of 7 per cent for 2015, while capital outflows totaled US$356 billion since the end of May, data compiled by Bloomberg show.
By at least one measure, the yuan is becoming expensive. The inflation-adjusted exchange rate against its major trading partners reached a record in February, after rising 34 per cent since the end of 2009, the most among 32 major currencies, according to the Bank for International Settlements.
"We are not done with the weakness yet," strategists including Perry Kojodjojo at Deutsche Bank wrote in a note on April 2. The yuan will resume its decline "in the absence of a stable economic outlook" and prolonged currency intervention, they said.
A weaker yuan could undermine China's push for the SDR membership. The IMF rejected the currency's candidacy for the reserve basket in 2010 because it wasn't "freely usable." Mr Zhou pledged on March 29 to further ease capital controls, saying policy makers will revamp currency regulation "relatively radically" this year. Instead of using the exchange rate, Chinese policy makers have relied on other tools to boost growth, including cutting interest rates and reserve requirements.
An SDR membership is among the "higher" objectives that dictates China's foreign-exchange policy, according to Stefan Hofer, the Hong Kong-based chief investment strategist at BNP Paribas Wealth Management, which oversees about 305 billion euros.
"It will be a major symbolic step," he said in a March 31 interview.
France's economy will expand at a slower rate than earlier thought in 2016 and 2017, the finance ministry said in new forecasts published on Wednesday.
PHOTO: BLOOMBERG
[PARIS] France's economy will expand at a slower rate than earlier thought in 2016 and 2017, the finance ministry said in new forecasts published on Wednesday.
Growth is expected to reach 1.5 per cent for both years, rather than 1.7 per cent previously forecast for 2016 and 1.9 per cent for 2017.
The ministry however maintained its 2015 growth forecast at 1 per cent.
It also reiterated that France is on course to bring down its public deficit to the EU limit of three per cent of output by 2017.
South Korea stands pat on record-low interest rate
South Korea's central bank on Thursday chose to leave its benchmark interest rate unchanged for April, following a surprise 25 basis point reduction the previous month.
PHOTO: BLOOMBERG
[SEOUL] South Korea's central bank on Thursday chose to leave its benchmark interest rate unchanged for April, following a surprise 25 basis point reduction the previous month.
With the base rate at a record-low 1.75 per cent, Thursday's decision by the Bank of Korea (BOK) to stand pat had been widely expected.
The March cut was the second in five months and reflected concerns that the economy is suffering from slow demand and lack of confidence among businesses and consumers.
Low rates are very much the trend across the Asia-Pacific region.
In recent months China and India have both made two reductions, while Australia, Indonesia, Singapore and Thailand have also been forced to ease monetary policy.
The BOK in January slashed its economic growth forecast for this year to 3.4 per cent from the previously tipped 3.9 per cent, while it also lowered its inflation outlook to 1.9 per cent from the 2.4 per cent earlier stated.
Slumping oil prices saw inflation fall to 0.5 per cent in February, the lowest rate for 15 years, deepening fears of deflation that could hammer an overgrown property market.
[PARIS] Bruised and battered after a year of armed conflict, Ukraine has been crippled by a combination of monetary, budgetary, industrial, banking and energy crises that could make it dependent on outside help for decades.
The country has suffered a series of shocks that has obliterated its fragile economy.
Its vital heavy industry, in the east, has been completely hamstrung, with production plunging by a fifth - not helped by a sharp decline in steel prices.
In addition, with foreign investors fleeing the uncertainty, the value of the local currency, the hryvnia, has fallen by around 50 per cent since the beginning of the year.
"Like many emerging markets, this has a direct effect on households, businesses and public finances, because both private and public debt is denominated in foreign currency," said Julien Marcilly, chief economist at insurance firm Coface.
Gross domestic product contracted 6.8 per cent last year, according to official statistics and the central bank is bracing for a decline of as much as 7.5 per cent in 2015.
Ukraine is also suffering a debt crisis, with its proportion of public debt to gross domestic product (GDP) expected to spiral to 94 per cent this year, according to the International Monetary Fund - from a healthy 40 per cent in 2013.
"There is a banking crisis, a monetary crisis and an economic crisis that translated into a strong contraction of GDP last year. This year, there will probably also be an energy crisis," said Francis Malige, Managing Director for Eastern Europe and the Caucasus at the European Bank for Reconstruction and Development.
The international community, desperate to avoid a collapse in the Ukrainian economy that could be a propaganda coup for Russia, has rushed to its aid.
In April 2014, the IMF sketched out a bailout plan worth some US$17.5 billion to come in a series of tranches - US$5 billion of which has already been paid out.
This is part of a package of US$40 billion pledged by the international community to help Ukraine back on its feet.
The European Union has offered Ukraine about 1.6 billion euros (US$2 billion) in short-term assistance and put together a wider package worth about 11 billion euros.
Ukraine has encountered huge difficulties in borrowing on the open market, raising only small sums over short periods of time.
Possible lenders are scared off by the potential for default - which the Moody's ratings agency says is near 100 per cent.
However, others see it differently - billionaire investor George Soros has said he is willing to plough one billion dollars into the country.
One thing that particularly irks investors is the perceived level of corruption in Ukraine.
The authorities in Kiev say they are trying to stamp out corruption and have fired a billionaire governor and arrested some high-level officials.
But Tatiana Jean, from the Paris-based IFRI think tank, said part of that was "play-acting".
If authorities were serious about clamping down on corruption, they could start with breaking the monopoly of state gas firm Naftogaz, she says.
Malige, from the EBRD - the main investor in the country - said another priority was to clean up the financial system.
"There are too many banks in Ukraine working on a closed system. They are in the hands of a few powerful people and they tend to finance the companies held by those same people," he said.
Nonetheless, he pointed out some of Ukraine's attractions: fertile agricultural land, "ultra-competitive" workforce and "the most reform-minded government since independence."
The Swedish central bank sent its base interest rate into unprecedented negative territory on Thursday in a radical move to stop stagnant price levels from slumping into deflation.
PHOTO: EPA
[STOCKHOLM] The Swedish central bank sent its base interest rate into unprecedented negative territory on Thursday in a radical move to stop stagnant price levels from slumping into deflation.
The bank dropped its zero interest rate to -0.1 per cent and announced it would buy government bonds worth 10 billion kronor (US$1.18 billion) in a bid to bring its inflation rate - which has hovered around zero for two years - closer to its two-per cent target.
"There are signs that underlying inflation (which excludes the food and energy sectors) has bottomed out, but the situation abroad is now more uncertain and this increases the risk that inflation will not rise sufficiently fast," the bank wrote in a statement.
Swedish price levels have been stagnant since 2012 but have yet to drag overall economic activity with them into a state of deflation.
There is a deep concern in many European economies about a deflationary spiral, which central banks find extremely difficult to reverse, where consumers hold off purchases in expectations that prices will fall, triggering a drop in demand that causes cuts in output and jobs and further falls in prices.
With prices across the eurozone sliding the European Central Bank announced in January a bond-buying spree worth 1.14 trillion euros to drive eurozone inflation up.
Sweden's central bank hopes its cut to an all-time low will cheapen the cost of lending in Sweden - already at historically low levels - but some economists cited worries about the country's levels of household debt, which are among the highest in the world.
"This underpins prices on the housing market which relate to household debt levels and the worries about them," Nordea bank's chief economist Annika Winsth told AFP.
"There is a great risk of bad investments. A free lunch will cost you in the long run," she added.
The central bank's bond-buying programme - which targets bonds with maturities of one to five years - serves to encourage investment and lending, and thus spending.
Such programmes also usually lead to a drop in the value of the currency as investors seek better returns elsewhere, and the Swedish krona dropped against the euro and the dollar after Thursday's announcement.
Swedish price levels have yet to take a toll on overall GDP growth - at 1.8 per cent in 2014 and forecast at 2.7 per cent for this year - but the bank does not see inflation picking up until 2016.
Sweden is a member of the European Union but not of the eurozone so it retains control, via its central bank, of monetary policy and interest rates.
The bank changed course in mid-2014 and starting cutting its base interest rate after keeping it at higher levels since 2010.
Oil dives 6% from 2015 high as stocks swell, Saudis pump
Oil prices dived 6 per cent on Wednesday after closing at their highest this year, as a mammoth rise in US crude stockpiles and news of record Saudi oil production scuttled talk of a sustained recovery.
PHOTO: EPA
[NEW YORK] Oil prices dived 6 per cent on Wednesday after closing at their highest this year, as a mammoth rise in US crude stockpiles and news of record Saudi oil production scuttled talk of a sustained recovery.
US crude oil inventories surged 10.95 million barrels - three times more than expected - to a modern-day record 482.39 million last week, US government data showed, the biggest one-week increase since 2001. Stockpiles in Cushing, Oklahoma, rose by 1.2 million barrels, much more than expected.
The data added to earlier losses triggered by comments that Saudi oil production rose to 10.3 million barrels per day (bpd) in March, the highest monthly total on record.
Brent May crude fell US$3.55, or 6 per cent, to settle at US$55.55 a barrel. US May crude fell US$3.56, or 6.6 per cent, to settle at US$50.42 after closing at nearly US$54 a barrel on Tuesday, the highest close since Dec 30.
The US data were "very bearish," said John Kilduff, partner at Again Capital LLC in New York.
The rise in crude stocks was fuelled in part by a 869,000-bpd increase in imports. Gasoline inventories rose 817,000 barrels, compared with analysts' expectations for a 1.0 million-barrel drop, as refiners increased capacity utilization.
U.S. RBOB gasoline futures fell 12.17 cents, or 6.54 per cent, to settle at US$1.7392 a gallon.
Oil's rally earlier this week was built in part on initial reports of a very small rise in Cushing inventories last week.
Late on Tuesday they got a further jolt when Saudi oil minister Ali al-Naimi said the kingdom stood ready to "improve"prices but only if producers outside the Organisation of the Petroleum Exporting Countries (Opec) joined the effort.
Oil's losses also came as two influential Federal Reserve officials said the US central bank could still hike interest rates in June despite weak recent US data and investor skepticism.
Minutes of the Fed's March 17-18 policy meeting, released on Wednesday, also show officials are eager to get the rate hike process started but are likely to go slow.
Iraq and Libya also increased their output for March, further adding to Opec production, which came to about 31.5 million bpd last month, according to analyst Olivier Jakob at Swiss-based Petromatrix. "With such a level of Opec production it will be difficult to escape large stock-builds throughout the year," he said in a note.
Canada budget economists see 2015 growth at 2%: survey
Canadian economists who provide the growth forecasts that will be used by the federal government in its April 21 budget see the economy expanding by 2 per cent this year as the price of oil stabilizes, according to a Reuters survey.
PHOTO: REUTERS
[OTTAWA] Canadian economists who provide the growth forecasts that will be used by the federal government in its April 21 budget see the economy expanding by 2 per cent this year as the price of oil stabilizes, according to a Reuters survey.
The Canadian government has used the average of private sector growth projections as a basis for fiscal planning since 1994, with the forecast potentially making the difference between a deficit or surplus.
The 2 per cent growth rate seen for 2015 is the median forecast of nine economists who responded to the Reuters survey out of 15 included in a government private sector poll in its fiscal update last November.
Growth is seen picking up slightly in 2016 to 2.2 per cent.
Finance Minister Joe Oliver, who is meeting with economists in Ottawa on Thursday, has vowed the ruling Conservatives will balance the books in the 2015-2016 fiscal year.
The Conservatives have run seven years of deficits in the fallout from the global credit crisis, and the upcoming budget could set the tone for the party's bid to win re-election later this year.
Oliver announced legislation on Wednesday that would commit the government to a balanced budget, unless there is a recession or extraordinary circumstance.
The forecast for 2015 in the Reuters survey is not far from the 2.1 per cent growth rate the Bank of Canada projected in January when it cut interest rates to 0.75 per cent.
The price of West Texas Intermediate crude oil is seen trading at $53 a barrel this year, slightly stronger than Wednesday's settlement price of $50.42, according to the survey. Crude is seen improving to $65 a barrel next year.
The price of oil, a major export for Canada, has more than halved since its peak last June, and the sharp drop prompted Oliver to delay releasing the budget until later this month. It is normally unveiled in February or March before the start of the new fiscal year.
A stronger economy out of the United States - Canada's biggest trading partner - should help offset some of the dampening effect of cheaper oil. Economists expect to see just over 3 per cent growth south of the border this year and 2.9 per cent growth in 2016.
Fed split on timing of interest-rate hike: minutes
The Federal Reserve was split at its last policy meeting on when to raise ultra-low US interest rates, with timing ranging from June to 2016, according to minutes released on Wednesday.
PHOTO: AFP
[WASHINGTON] The Federal Reserve was split at its last policy meeting on when to raise ultra-low US interest rates, with timing ranging from June to 2016, according to minutes released on Wednesday.
"Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting," said the report on the March 17-18 meeting of the Federal Open Market Committee, the central bank's policy arm.
Given the fall in energy prices and the stronger dollar, the other FOMC participants deemed the economy would not be able to weather a hike until later in the year. "A couple" said liftoff would remain unlikely until 2016, the minutes said.
At the meeting, the Fed left its key federal funds rate unchanged near zero, where it has been pegged since late 2008 to support the recovery from the Great Recession.
It dropped from its policy statement a line used previously saying it will remain "patient" before acting - sending a signal that a rate hike could come as early as June.
But the FOMC said it expected the timing would be appropriate when it had seen further improvement in the labor market and is "reasonably confident" that currently weak inflation will move back to its 2.0 per cent target over the medium term.
The Fed has blamed tepid inflation on "transitory" factors, including the rapid dive in crude-oil prices since June.
The latest data available on the Fed's preferred inflation measure, the "core" personal consumption expenditures price index, which excludes food and energy, showed a modest 1.4 per cent increase in February from a year ago.
The participants discussed when it might be appropriate to begin to raise the interest rate, in the context of inflation likely to remain weak in the short term.
"The normalization process could be initiated prior to seeing increases in core price inflation or wage inflation," the minutes said.
"Further improvement in the labour market, a stabilization of energy prices, and a levelling out of the foreign exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up." The participants noted that economic growth had moderated since their January meeting, with slower consumer spending, a weaker housing market and the stronger dollar hampering exports.
The meeting came before a batch of weakening economic data, including the disappointing March jobs report last Friday that showed job growth of only 126,000 positions, half of what was expected and the worst month since December 2013.
"We expect that the Fed will soon see the evidence it needs to determine that March was an aberration," said Paul Edelstein of IHS Global Insight.
"Meanwhile, thanks to the Fed's delay in expected rate hikes and recent evidence that the eurozone is moving away from deflation, the ascent of the dollar appears to have stopped. This information certainly suggests that there is a fairly low bar for the Fed to raise rates in September, which remains our forecast."
My previous post discussed Larry Summers’ secular stagnation hypothesis, the notion that monetary policy will be chronically unable to push interest rates low enough to achieve full employment. The only sure way to get closer to full employment, in this view, is through fiscal action.
A shortcoming of the secular stagnation hypothesis is that it focuses only on factors affecting domestic capital formation and domestic household spending. But US households and firms can also invest abroad, where many of the factors cited by secular stagnationists (such as slowing population growth) may be less relevant. Currently, many major economies are in cyclically weak positions, so that foreign investment opportunities for US households and firms are limited. But unless the whole world is in the grip of secular stagnation, at some point attractive investment opportunities abroad will reappear.
If that’s so, then any tendency to secular stagnation in the US alone should be mitigated or eliminated by foreign investment and trade. Profitable foreign investments generate capital income (and thus spending) at home; and the associated capital outflows should weaken the dollar, promoting exports. At least in principle, foreign investment and strong export performance can compensate for weak demand at home. Of course, there are barriers to the international flow of capital or goods that may prevent profitable foreign investments from being made. But if that’s so, then we should include the lowering or elimination of those barriers as a potentially useful antidote to secular stagnation in the US.
Some years ago I discussed the macroeconomic implications of global flows of saving and investment under the rubric of the “global savings glut”. My conclusion was that a global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging market economies and oil producers like Saudi Arabia, was a major reason for low global interest rates. I argued that the flow of global saving into the United States helped to explain the “conundrum” (to use Alan Greenspan’s term) of persistently low longer-term interest rates in the mid-2000’s while the Fed was raising short-term rates. Strong capital inflows also pushed up the value of the dollar and helped create the very large US trade deficit of the time, nearly 6 percent of US gross domestic product in 2006. The diversion of 6 percent of domestic demand to imports provides an alternative explanation to secular stagnation for the failure of the US economy to overheat in the early 2000’s, despite the presence of a growing bubble in housing (see Hamilton, Harris, Hatzius, and West (2015) for a quantitative analysis).
There is some similarity between the global saving glut and secular stagnation ideas: Both posit an excess of desired saving over desired capital investment at “normal” interest rates, implying substantial downward pressure on market rates. Both can account for slower US growth: Secular stagnation works through reduced domestic investment and consumption, the global savings glut through weaker exports and a larger trade deficit. However, there are important differences as well. As I’ve mentioned, the savings glut hypothesis takes a global perspective while the secular stagnation approach is usually applied to individual countries or regions. A second difference is that stagnationists tend to attribute weakness in capital investment to fundamental factors, like slow population growth, the low capital needs of many new industries, and the declining relative price of capital. In contrast, with a few exceptions, the savings glut hypothesis attributes the excess of desired saving over desired investment togovernment policy decisions, such as the concerted efforts of the Asian EMEs to reduce borrowing and build international reserves after the Asian financial crisis of the late 1990s.
This second difference is important, I think, because it implies quite different policy responses, depending on which hypothesis one accepts. As Summers has proposed, if secular stagnation is the reason for slow growth and low interest rates, expansionary fiscal policy could be helpful; and, in the longer run, the government could also take steps to improve the returns to capital investment, such as offering more favorable tax treatment and supporting research and development. If a global savings glut is the cause, then the right response is to try to reverse the various policies that generate the savings glut—for example, working to free up international capital flows and to reduce interventions in foreign exchange markets for the purpose of gaining trade advantage.
To help assess whether a global savings glut still exists, the table at the end of this post updates the data from my 2005 and 2007 speeches. Shown are national current account surpluses and deficits for four years, two before and two after the crisis, with the most recent being 2013 (complete data for 2014 are not yet available). The data, mostly from the International Monetary Fund, are in billions of U.S. dollars. Expressing current account balances in dollars allows for easy comparisons across countries, but keep in mind that the figures are not adjusted for inflation or growth in the various economies and regions.
A country’s current account surplus is roughly the net amount of financial capital it is sending abroad; it’s also equal to the country’s national saving less its investment at home. A country with a current account surplus is saving more than it is investing domestically and using the excess savings to acquire foreign assets. A country with a current account deficit is a net borrower on global capital markets.
The table confirms a few basic points about the evolution of current account balances:
First, the US current account deficit roughly halved (in dollar terms) between 2006 and 2013, falling to about $400 billion, or 2-1/2 percent of gross domestic product. Of course, the upsurge in US oil production, which reduced the need for imported energy, had a lot to do with that. Among the major industrial countries, the improvement in the US position was partly offset, arithmetically speaking, by a significant decline in Japan’s current account surplus and Canada’s sharp swing into deficit.
Second, the aggregate current account surplus of emerging market countries—whose large net saving was an important part of my original savings glut story—has fallen significantly since 2006. The decline is accounted for by the reduction in China’s surplus (partly offset by increases elsewhere in Asia) and a shift from surplus to significant deficit in Latin America (particularly in Brazil).
Third, the current account surplus of the Mideast/North Africa region was large in 2006 and remained large in 2013, reflecting continued profits from oil sales. However, given the sharp recent drop in oil prices, it seems likely that those surpluses fell in 2014.
Finally, in an important development, the collective current account surplus of the euro zone countries has risen by more than $300 billion since 2006. About a quarter of this swing comes from increases in Germany’s already large surplus, but the dominant factor is the shift from deep deficit to surplus on the part of the so-called periphery (Greece, Ireland, Italy, Portugal, Spain). Some of that may be due to improvements in competitiveness, but the bulk likely reflects the deep recessions those economies have experienced, which have reduced domestic investment opportunities.
What should we conclude? The interpretation of the data below can only be impressionistic, but here is my take. An important source of the global saving glut I identified before the financial crisis was the excess savings of emerging market economies (especially Asia) and of oil producers. The good news is that, for reasons ranging from China’s efforts to reduce its dependence on exports to the decline in global oil prices, the current account surpluses of this group of countries, though still large, look to be on a downward trend. Offsetting this decline, however, has been a significant increase in the collective current account balance of the euro zone. In particular, Germany, with population and GDP each less than a quarter that of the United States, has become the world’s largest net exporter of both goods and financial capital. In a world that is short aggregate demand, the persistence of a large German current account surplus is troubling. However, much of the net change in the euro zone balance in recent years appears to be due to cyclical factors—specifically, the deep ongoing recession in the European periphery.
Putting all this together, the global savings glut hypothesis remains a useful perspective for understanding recent developments, particularly the low level of global interest rates. Overall, I see the savings glut interpretation of current events as providing a bit more reason for optimism than the stagnationist perspective. If (1) China continues to move away from export dependence toward greater reliance on domestic demand, (2) the buildup of foreign reserves among emerging markets, especially in Asia, continues to slow, and (3) oil prices remain low, then we can expect the excess savings from emerging markets and oil producers to decline further from pre-crisis peaks. This drop has recently been partially offset by the movement of the euro zone into current account surplus. However, only part of the rise in the European surplus—mostly the part attributable to Germany—looks to be structural and long-lasting. Much of the rest of euro-zone surplus likely reflects depressed cyclical conditions. When the European periphery returns to growth, which presumably will happen at some point, the collective surplus ought to decline.
If global imbalances in trade and financial flows do moderate over time, there should be some tendency for global real interest rates to rise, and for US growth to look more sustainable as the outlook for exports improves. To make sure that this happens, the US and the international community should continue to oppose national policies that promote large, persistent current account surpluses and to work toward an international system that delivers better balance in trade and capital flows.
Sources: IMF World Economic Outlook database; national sources; U.S. Bureau of Economic Analysis, Department of Commerce. Advanced Economies includes G10, Euro Area (which is calculated as the sum of the 18 countries), and the Other Advanced Economies (as defined by the IMF, but excluding the Asian tigers).
Ben S. Bernanke is a Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution. From February 2006 through January 2014, he was Chairman of the Board of Governors of the Federal Reserve System. Dr. Bernanke also served as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body.
