The US, sooner or later, has to start paying for what it consumes.
Martin Wolf in for “Choices made in 2009 will shape our destiny” January 7, describes very accurately our starting point saying that “relying on vast US fiscal deficits and expansion of central bank credit is a temporary – albeit necessary- … will not deliver a durable return to growth. Fundamental changes are needed”. Wolf also points out the problem of the “persistent external and internal imbalances in the US and the world” that result from the US and a number of other chronic deficit countries” having “structurally deficient capacity to produce tradable goods and services.
Unfortunately, after such a clear diagnosis, Wolf proceeds hinting at the need of even higher fiscal deficits without giving much clues as of to what those required fundamental changes could be; and so let me then suggest one truly fundamental change, that of the US starting to pay for its own spending spree instead of having the world finance it.
One aspect conspicuously absent in the discussions is the need for the US to come up with a new generation of taxes that are appropriate to the current conditions and that work in a globalized setting. One type of these taxes, namely a tax on gas, has at least started to be discussed in Washington.
Absent the willingness of the US to pick up the bill for their own consumption, they might buy themselves some time if China buys up a million of houses in the USA so as to get some more real backing for their dollar investments; and which by the way would also be a great alternative for China to get the US economy going again for the benefit of their own business model.
As I see history playing out its ironic hand housing finance created a perfect storm which forced everyone into the safe harbour of the US treasuries, until it got so crowded there that everyone started swimming again to the house-wrecks.
Unfortunately, after such a clear diagnosis, Wolf proceeds hinting at the need of even higher fiscal deficits without giving much clues as of to what those required fundamental changes could be; and so let me then suggest one truly fundamental change, that of the US starting to pay for its own spending spree instead of having the world finance it.
One aspect conspicuously absent in the discussions is the need for the US to come up with a new generation of taxes that are appropriate to the current conditions and that work in a globalized setting. One type of these taxes, namely a tax on gas, has at least started to be discussed in Washington.
Absent the willingness of the US to pick up the bill for their own consumption, they might buy themselves some time if China buys up a million of houses in the USA so as to get some more real backing for their dollar investments; and which by the way would also be a great alternative for China to get the US economy going again for the benefit of their own business model.
As I see history playing out its ironic hand housing finance created a perfect storm which forced everyone into the safe harbour of the US treasuries, until it got so crowded there that everyone started swimming again to the house-wrecks.
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