"We are approaching a turning point in the global economy," Saysken Rogoff, a professor of economics at Harvard. He says US consumption growth is likely to grow very slowly for several years to come, as the housing boom subsides and the household savings rate moves back towards more normal levels. A sharp slowdown in US consumption, Partially if it was accepted by a slow down in China, would bring oil prices and supplements down too.
Ken, an economics professor at Harvard University? Ken Rogoff said: "We are approaching a turning point in the global economy." He said that consumption growth in the United States in the next few years may be very slow due to the decline of the housing market prosperity and the return of the household savings rate to a more normal level. Once the consumption level in the United States slows down sharply, it will lower oil prices and reduce the current account surplus of oil-producing countries. This will be especially true if China's economic growth slows down at the same time.
There is a near consensus, though, that to reduce imbalances substantially without a global recession there will have to be changes in relative prices of imports and exports, Traded and non-traded goods, via exchange rates.
Exchange rate dilemma
However, there is a problem that people are close to reaching a consensus: to greatly reduce the global economic imbalance without causing a global recession, it is necessary to adjust the relative import and export prices of traded and non-traded goods through exchange rate changes.
Research suggests that changes in exchange rates in isolation will not have a great effect on imbalances, But that they are required as part of a broader shift to bringing the world economy back to balance.
Martin, another economics professor at Harvard University? Martin Feldstein said: "The current account deficit of the United States must be greatly reduced, and an affordable slowdown in US economic growth will not be enough to achieve this change, so it will be necessary to readjust the exchange rate substantially. This has basically been unanimously recognized. "
Research shows that isolated exchange rate changes will not have a significant impact on global imbalances, but exchange rate adjustment is also an indispensable part of a broader transformation to bring the global economy back to balance.
Last year, Rogoff and Morris, an economics professor at the University of California? Obus Feld once estimated that the real exchange rate of the US dollar must fall by 33% if the US trade deficit is to disappear completely, and by 17% if it is to be cut in half. These estimates are still basically applicable today. However, as the two professors pointed out, to achieve the above goals in a short time, the depreciation of the dollar may be much larger than this.
In addition, to a great extent, the distribution of the burden of exchange rate adjustment depends on whether Asian countries, including China, work with Europe to revalue their currencies. So far this year, the RMB exchange rate has hardly changed, although there is hope that it will appreciate faster in the future.
is the imbalance persistent?
of course, the longer the imbalance lasts, the more people tend to think it is sustainable. Some analysts argue that the United States plays the role of a global financial intermediary, creating assets that developing economies do not have. Another way of saying this is that the United States has obtained a return premium by issuing bonds and buying overseas stocks (and increasing their value).
However, with the passage of time, financial reform will increase financial assets outside the United States, and the return rate of overseas stock investment may fluctuate more sharply than that of fixed-income assets. Because the growth rate and interest rate of American economy are higher than those of other developed countries, investors may have thought that the risk of exchange loss is negligible. However, with the readjustment of the global demand balance, at some point, they will demand higher returns to offset the risks of exchange rate and asset concentration, which seems inevitable. Many important decisions will be made by the central banks that actually peg the exchange rate to the US dollar, and it is impossible for them to easily diversify their foreign exchange reserves and shift their reserve assets from the US dollar to other currencies. In addition, global interest rates are generally at a low level, indicating that savings requirements are still higher than investment. Therefore, the serious imbalance of the global economy may still be the result of equilibrium for some time, but this equilibrium will eventually be unsustainable.