Current Account Deficit Optimal?
Federal Reserve Economist John Rogers and University of Wisconsin Professor Charles Engel have published a new paper in the Journal of Monetary Economics suggesting that the U.S. Account Deficit may be at an optimal levels.
For what its worth...
If you could afford to service the debt, the last three years was the best time in history to borrow money.
Why? The money was free. This kind of central bank sanctioned welfare doesn't come along very often.
To avoid paying the piper after the high tech dance the Fed lowered rates and made money free, repleat with a carry trade for market participants.
Corporations, individuals and governments took full advantage. And as is always the case, many abused the priviledge. We traded the pain of deflation for another bubble in the process.
And along with the abuse came the gravitational force of capital chasing yield. This led to over speculation in asset markets, overinvestment and malinvestment or misallocation of capital resources.
Investment in durable and sustaining economic activity has been eschewed for pure profit and instant gratification. As a result, our capability to supply our own consumption is now crippled.
Now, as with everything else in the "cycle", the pendulum has started swinging the other way. And when it swings, the weak hands will get flushed out, i.e. those who have overextended, overleveraged, miscaculated, or simply cannot service the debt.
From a global economic standpoint, we are in previously uncharted waters, navigating with at best crude and inaccurate implements.
How anyone can say whether our deficit is optimal or not is beyond the reach of current economic "knowledge", human experience and calculus.
Therefore, the study in question is at best, like the bulk of things in this world today, speculative. Hence the many disclaimers in their paper.
The answer to the question is TBD, to be determined, as time marches forward.
For what its worth...
If you could afford to service the debt, the last three years was the best time in history to borrow money.
Why? The money was free. This kind of central bank sanctioned welfare doesn't come along very often.
To avoid paying the piper after the high tech dance the Fed lowered rates and made money free, repleat with a carry trade for market participants.
Corporations, individuals and governments took full advantage. And as is always the case, many abused the priviledge. We traded the pain of deflation for another bubble in the process.
And along with the abuse came the gravitational force of capital chasing yield. This led to over speculation in asset markets, overinvestment and malinvestment or misallocation of capital resources.
Investment in durable and sustaining economic activity has been eschewed for pure profit and instant gratification. As a result, our capability to supply our own consumption is now crippled.
Now, as with everything else in the "cycle", the pendulum has started swinging the other way. And when it swings, the weak hands will get flushed out, i.e. those who have overextended, overleveraged, miscaculated, or simply cannot service the debt.
From a global economic standpoint, we are in previously uncharted waters, navigating with at best crude and inaccurate implements.
How anyone can say whether our deficit is optimal or not is beyond the reach of current economic "knowledge", human experience and calculus.
Therefore, the study in question is at best, like the bulk of things in this world today, speculative. Hence the many disclaimers in their paper.
The answer to the question is TBD, to be determined, as time marches forward.
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