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Showing posts with label doom loop. Show all posts
Showing posts with label doom loop. Show all posts

February 3, 2016

America’s Overvalued Dollar and the External Deficit Doom Loop

Why has it taken so long to restore solid economic growth in America?  Why have so many American families lost their jobs, their incomes – even their homes?  A key reason may well be the overvalued U.S. dollar and the External Deficit Doom Loop.

No one really noticed the doom loop developing, but over the past 40 years, the American economy became trapped in a downward spiral driven by an overvalued dollar and rising trade deficits. As shown in the graphic below, the external deficit doom loop touches every sector of the economy. 

Let’s see how problems at each stage have become linked to form a job-destroying, growth-destroying doom loop.

August 14, 2015

Trade Deficits -- Growth Stimulant or Depressant?

Summary

Understanding the impact of trade deficits and foreign debt on economic growth is vital to understanding the origins of America’s current economic problems and to designing trade and monetary policies that will put America back on the path to prosperity for all in the 21st century. 

Unfortunately, economists are sharply divided regarding the impact of trade imbalances on growth.
Progressive economists such as Scott and Baker generally say that trade deficits are the leading cause of slow growth, excessive unemployment and growing social inequality in the United States, that trade deficits threaten the nation’s long-term economic viability. 

In sharp contrast, conservative economists such as Riley, Griswold and Ikenson would generally say that trade deficits mean faster economic growth and falling unemployment, that the foreign loans used to finance these deficits are an important vote of confidence in America.

The 2015 Economic Report of the President by the Council of Economic Advisors presents both of these conflicting positions but fails to reconcile them or to provide meaningful policy options for action. 

This note reconciles the conservative and progressive views and presents a possible consensus position on U.S. trade policy for the 21st Century, one that could simultaneously increase business profitability, stimulate innovation, maximize employment, and reduce income inequality.