Krugman et al

[Automek]

Mas enfim a ideologia é um filtro que elimina a relaidade que não lhe convém.

Por acaso é engraçado ver este comentário quando sabemos que este governo já foi apelidado de neoliberal um bilião de vezes. Se estes tipos são neoliberais nem quero imaginar o que seja um socialista.

[Incognitus]

O ano passado em conversa com um casal adorável Americano , já sénior, ele mostrou-me , com um orgulho paternal,
uma foto do Obama.

Quando lhe disse que achava que o Obama era Comunista, ele disse-me espantado:

- Comunist? he's not even Socialist?

Foi aí que entendi que os EUA eram, oficialmente Socialistas e capturados pelo "canto da sereia" do orçamento de Estado.

O Krugman é um dos porta-estandarte .

Embora tenhamos no fórum um tópico a questionar-se se os EUA são socialistas, na realidade não têm como ser. São apenas mais uma forma de social-democracia que devagar é semelhante às Europeias. O socialismo exige a extinção da propriedade privada, e isso ninguém defende (nem aqui nem lá).

O que os EUA ainda têm e que parte da Europa perdeu um pouco, é a flexibilidade para adaptarem a sua economia via a facilidade em despedir e a mobilidade geográfica, entre outras coisas. Isso faz com que os trambolhões do mercado tendam a ser temporários.

[Incognitus]

O ano passado em conversa com um casal adorável Americano , já sénior, ele mostrou-me , com um orgulho paternal,
uma foto do Obama.

Quando lhe disse que achava que o Obama era Comunista, ele disse-me espantado:

- Comunist? he's not even Socialist?

Foi aí que entendi que os EUA eram, oficialmente Socialistas e capturados pelo "canto da sereia" do orçamento de Estado.

O Krugman é um dos porta-estandarte .

Há uns tempos aparecu aqui um tal Pimba a iniciar um tópico com título "Os USA são actualmente socialistas...". Tratava-se de uma pessoa de fortes convicções e muitas certezas mas tinha um problema: não sabia ler gráficos  .
Lá ia postando uns gráficos, mas estes teimavam em não evidenciar aquilo que ele apregoava. Passado pouco tempo, lá foi embora pestando contra aquelas mentes de entendimento limitado que olhavam os gráficos de maneira literal incapazes de reconhecer que havia verdades para além das curvas ou linhas que estavam nos gráficos 
Passdo algum tempo por acidente até tropecei nalguns gráficos que me levaram a dizer que a decadência dos USA se iniciou quando os USA deixaram de ser socialistas (por ironia ao título do tópico). Ainda por lá deve andar.
Mas enfim a ideologia é um filtro que elimina a relaidade que não lhe convém.

Porém há uma coisa nesse tópico que é real - para um conjunto de pessoas foram criados incentivos CONTRA trabalhar, porque é possível obter maior poder de compra efectivo não o fazendo do que fazendo-o e sendo mal remunerado ou até remunerado medianamente.

Isso é um incentivo bastante mau.

Esse incentivo já foi visto nos EUA, Japão, Reino Unido, vários países da Europa incluindo Portugal, etc. É um fenómeno real e perigoso.

[Deus Menor]

Embora tenhamos no fórum um tópico a questionar-se se os EUA são socialistas, na realidade não têm como ser. São apenas mais uma forma de social-democracia que devagar é semelhante às Europeias. O socialismo exige a extinção da propriedade privada, e isso ninguém defende (nem aqui nem lá).

O que os EUA ainda têm e que parte da Europa perdeu um pouco, é a flexibilidade para adaptarem a sua economia via a facilidade em despedir e a mobilidade geográfica, entre outras coisas. Isso faz com que os trambolhões do mercado tendam a ser temporários.

O caminho foi aberto pelo Obama com o plano de Saúde, a seguir será a Educação e a cereja em cima do bolo: as pensões.Os
so called serviços mínimos vão tornar-se máximos...

É um caminho que se vai fazendo geração após geração, o que eu digo é que os EUA já passaram o ponto de inflexão de bastião do Liberalismo
para um Socialismo que se vai enraizando.

[Deus Menor]

 Há uns tempos aparecu aqui um tal Pimba a iniciar um tópico com título "Os USA são actualmente socialistas...". Tratava-se de uma pessoa de fortes convicções e muitas certezas mas tinha um problema: não sabia ler gráficos  .
Lá ia postando uns gráficos, mas estes teimavam em não evidenciar aquilo que ele apregoava. Passado pouco tempo, lá foi embora pestando contra aquelas mentes de entendimento limitado que olhavam os gráficos de maneira literal incapazes de reconhecer que havia verdades para além das curvas ou linhas que estavam nos gráficos 
Passdo algum tempo por acidente até tropecei nalguns gráficos que me levaram a dizer que a decadência dos USA se iniciou quando os USA deixaram de ser socialistas (por ironia ao título do tópico). Ainda por lá deve andar.
Mas enfim a ideologia é um filtro que elimina a relaidade que não lhe convém.

É uma estória engraçada.
Lembra-me aqueles discursos filosóficos que o Mau, do filme, faz quando o herói está quase a morrer...

As ideologias não se medem com gráficos, são formas de estar.

[Incognitus]

Embora tenhamos no fórum um tópico a questionar-se se os EUA são socialistas, na realidade não têm como ser. São apenas mais uma forma de social-democracia que devagar é semelhante às Europeias. O socialismo exige a extinção da propriedade privada, e isso ninguém defende (nem aqui nem lá).

O que os EUA ainda têm e que parte da Europa perdeu um pouco, é a flexibilidade para adaptarem a sua economia via a facilidade em despedir e a mobilidade geográfica, entre outras coisas. Isso faz com que os trambolhões do mercado tendam a ser temporários.

O caminho foi aberto pelo Obama com o plano de Saúde, a seguir será a Educação e a cereja em cima do bolo: as pensões.Os
so called serviços mínimos vão tornar-se máximos...

É um caminho que se vai fazendo geração após geração, o que eu digo é que os EUA já passaram o ponto de inflexão de bastião do Liberalismo
para um Socialismo que se vai enraizando.

A educação penso que já é gratuita, baseada nos impostos locais (sobre o imobiliário). Nisso já é igual à Europa.

A saúde não é mas o sistema dos EUA é disfuncional, e em parte isso pode até ser devido à natureza da actividade, onde quem toma as decisões não é o consumidor. É um mercado difícil de estruturar. A lógica Francesa de o consumidor escolher onde quer ser servido mas o Estado pagar (tabelado, tipo Medicare nos EUA) parece-me uma possível boa solução. Perde-se o mecanismo do preço em grande medida (porque é tabelado pelo Estado) mas mantém-se a escolha do consumidor (favorecendo a qualidade).

[Deus Menor]

É um mercado difícil de estruturar.

É um facto, mas existe uma nova forma que está a avançar com alguma sustentabilidade:

- verticalização: as seguradoras têm os seus próprios Hospitais e rede de cuidados primários.

As margens intermédias são eliminadas, o preço dos cuidados de saúde diminuem e consequentemente os prémios.

[Dilath Larath]

bernanke começa um novo blog no brookings institute

Inaugurating a new blog

When I was at the Federal Reserve, I occasionally observed that monetary policy is 98 percent talk and only two percent action. The ability to shape market expectations of future policy through public statements is one of the most powerful tools the Fed has. The downside for policymakers, of course, is that the cost of sending the wrong message can be high. Presumably, that’s why my predecessor Alan Greenspan once told a Senate committee that, as a central banker, he had “learned to mumble with great incoherence.”

On January 31, 2014, I left the chairmanship of the Fed in the capable hands of Janet Yellen. Now that I’m a civilian again, I can once more comment on economic and financial issues without my words being put under the microscope by Fed watchers. I look forward to doing that—periodically, when the spirit moves me—in this blog. I hope to educate, and I hope to learn something as well. Needless to say, my opinions are my own and do not necessarily reflect the views of my former colleagues at the Fed.

Comments and questions are welcome. We will post a selection of the best we receive, and I will occasionally respond, in the comments section or in the blog itself. Thanks for reading.

ben bernanke

[Dilath Larath]

Ben S. Bernanke | March 30, 2015 6:01am

Why are interest rates so low?
 
Interest rates around the world, both short-term and long-term, are exceptionally low these days. The U.S. government can borrow for ten years at a rate of about 1.9 percent, and for thirty years at about 2.5 percent. Rates in other industrial countries are even lower: For example, the yield on ten-year government bonds is now around 0.2 percent in Germany, 0.3 percent in Japan, and 1.6 percent in the United Kingdom. In Switzerland, the ten-year yield is currently slightly negative, meaning that lenders must pay the Swiss government to hold their money! The interest rates paid by businesses and households are relatively higher, primarily because of credit risk, but are still very low on an historical basis.

Low interest rates are not a short-term aberration, but part of a long-term trend. As the figure below shows, ten-year government bond yields in the United States were relatively low in the 1960s, rose to a peak above 15 percent in 1981, and have been declining ever since. That pattern is partly explained by the rise and fall of inflation, also shown in the figure. All else equal, investors demand higher yields when inflation is high to compensate them for the declining purchasing power of the dollars with which they expect to be repaid. But yields on inflation-protected bonds are also very low today; the real or inflation-adjusted return on lending to the U.S. government for five years is currently about minus 0.1 percent.

Why are interest rates so low? Will they remain low? What are the implications for the economy of low interest rates?

If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense. The Fed does, of course, set the benchmark nominal short-term interest rate. The Fed’s policies are also the primary determinant of inflation and inflation expectations over the longer term, and inflation trends affect interest rates, as the figure above shows. But what matters most for the economy is the real, or inflation-adjusted, interest rate (the market, or nominal, interest rate minus the inflation rate). The real interest rate is most relevant for capital investment decisions, for example. The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed.

To understand why this is so, it helps to introduce the concept of the equilibrium real interest rate (sometimes called the Wicksellian interest rate, after the late-nineteenth- and early twentieth-century Swedish economist Knut Wicksell). The equilibrium interest rate is the real interest rate consistent with full employment of labor and capital resources, perhaps after some period of adjustment. Many factors affect the equilibrium rate, which can and does change over time. In a rapidly growing, dynamic economy, we would expect the equilibrium interest rate to be high, all else equal, reflecting the high prospective return on capital investments. In a slowly growing or recessionary economy, the equilibrium real rate is likely to be low, since investment opportunities are limited and relatively unprofitable. Government spending and taxation policies also affect the equilibrium real rate: Large deficits will tend to increase the equilibrium real rate (again, all else equal), because government borrowing diverts savings away from private investment.

If the Fed wants to see full employment of capital and labor resources (which, of course, it does), then its task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate, or—more realistically—its best estimate of the equilibrium rate, which is not directly observable. If the Fed were to try to keep market rates persistently too high, relative to the equilibrium rate, the economy would slow (perhaps falling into recession), because capital investments (and other long-lived purchases, like consumer durables) are unattractive when the cost of borrowing set by the Fed exceeds the potential return on those investments. Similarly, if the Fed were to push market rates too low, below the levels consistent with the equilibrium rate, the economy would eventually overheat, leading to inflation—also an unsustainable and undesirable situation. The bottom line is that the state of the economy, not the Fed, ultimately determines the real rate of return attainable by savers and investors. The Fed influences market rates but not in an unconstrained way; if it seeks a healthy economy, then it must try to push market rates toward levels consistent with the underlying equilibrium rate.

This sounds very textbook-y, but failure to understand this point has led to some confused critiques of Fed policy. When I was chairman, more than one legislator accused me and my colleagues on the Fed’s policy-setting Federal Open Market Committee of “throwing seniors under the bus” (to use the words of one senator) by keeping interest rates low. The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings.

I was concerned about those seniors as well. But if the goal was for retirees to enjoy sustainably higher real returns, then the Fed’s raising interest rates prematurely would have been exactly the wrong thing to do. In the weak (but recovering) economy of the past few years, all indications are that the equilibrium real interest rate has been exceptionally low, probably negative. A premature increase in interest rates engineered by the Fed would therefore have likely led after a short time to an economic slowdown and, consequently, lower returns on capital investments. The slowing economy in turn would have forced the Fed to capitulate and reduce market interest rates again. This is hardly a hypothetical scenario: In recent years, several major central banks have prematurely raised interest rates, only to be forced by a worsening economy to backpedal and retract the increases. Ultimately, the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low (closer to the low equilibrium rate), so that the economy could recover and more quickly reach the point of producing healthier investment returns.

A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates “artificially low.” Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by “the markets.” The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere. So where should that be? The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate. There is absolutely nothing artificial about that! Of course, it’s legitimate to argue about where the equilibrium rate actually is at a given time, a debate that Fed policymakers engage in at their every meeting. But that doesn’t seem to be the source of the criticism.

The state of the economy, not the Fed, is the ultimate determinant of the sustainable level of real returns. This helps explain why real interest rates are low throughout the industrialized world, not just in the United States. What features of the economic landscape are the ultimate sources of today’s low real rates? I’ll tackle that in later posts.

ben bernanke

[Dilath Larath]

Ben Bernanke’s Brookings blog begins! And the subject of the first post is a defense of the Fed against the charge that it has been keeping interest rates “artificially low” and hurting savers.

It’s a very clear, well-argued post; regular readers know that I’ve been making essentially the same arguments for years. I’d just add two points.

First, the image of the little old lady living hand to mouth off the interest on her bank account is basically a fiction. Most retired Americans depend on Social Security for the majority of their income, and have very little in interest earnings; the decline in rates has primarily hurt a small minority of very well-off seniors. Here’s a chart (from data here) showing the change in asset income of seniors from all sources (I couldn’t break out interest) from 2006 to 2010, as interest rates fell through the floor, averaged by quintile:

It’s not as smooth as I expected, but it’s clear that the decline was much bigger among the better-off; to the extent that Fed policy was reducing returns, it was reducing inequality among seniors.

Second, much of the critique of low rates simply assumes that saving is a meritorious activity that should be encouraged. But the very fact that the economy remained depressed despite zero rates was telling us that we were awash in desired savings with no place to go — that’s what a liquidity trap is all about. And in that context more saving actually hurts the economy; it even hurts investment via the paradox of thrift.

What I find most interesting about Bernanke’s first blog post — which is, as I said, clear and completely correct — is that he chose that topic. What that’s telling us, I think, is what the people he talked to as Fed chair complained about most: not the failure to hit the inflation target, not the persistence of high unemployment, but disappointing returns for rentiers. John Galt, it turns out, wants price supports.

krugman

[Dilath Larath]

paradox of thrift

Paradox of Thrift states that individuals try to save more during an economic recession, which essentially leads to a fall in economic growth.

Definition: Paradox of thrift was popularized by the renowned economist John Maynard Keynes.

It states that individuals try to save more during an economic recession, which essentially leads to a fall in aggregate demand and hence in economic growth. Such a situation is harmful for everybody as investments give lower returns than normal.

Description: Keynes further said that such a mass increase in savings eventually hurts the economy as a whole.

This theory was heavily criticized by non-Keynesian economists on the ground that an increase in savings allows banks to lend more. This will make interest rates go down and lead to an increase in lending and, therefore, spending.

fonte

[Zel]

com tanta divida para consumo nao me parece que esse seja um problema moderno 

[Kin2010]

Excelente artigo do Bernanke acima, aprendi muito com ele. E fico na expectativa do artigo seguinte, ond ele explicará por que é que as taxas estão cronicamente tão baixas desde há muitos anos.

[Kin2010]

Embora tenhamos no fórum um tópico a questionar-se se os EUA são socialistas, na realidade não têm como ser. São apenas mais uma forma de social-democracia que devagar é semelhante às Europeias. O socialismo exige a extinção da propriedade privada, e isso ninguém defende (nem aqui nem lá).

O que os EUA ainda têm e que parte da Europa perdeu um pouco, é a flexibilidade para adaptarem a sua economia via a facilidade em despedir e a mobilidade geográfica, entre outras coisas. Isso faz com que os trambolhões do mercado tendam a ser temporários.

O caminho foi aberto pelo Obama com o plano de Saúde, a seguir será a Educação e a cereja em cima do bolo: as pensões.Os
so called serviços mínimos vão tornar-se máximos...

É um caminho que se vai fazendo geração após geração, o que eu digo é que os EUA já passaram o ponto de inflexão de bastião do Liberalismo
para um Socialismo que se vai enraizando.

Não, o caminho não foi iniciado por Obama. Foi iniciado nos anos 60, quando o welfare state americano se desenvolveu. Teve depois uma forte interrupção com o Reagan. Depois continuou com o Clinton, George W Bush, e Obama. Estes 3 últimos presidentes são todos parte de uma única tendência, que é, de facto, um aprofundar da segurança social, e maior nível de estatização da economia do que antes, se quisermos uma "europeização". O Obama é marginal nessa tendência. O Clinton e o W Bush foram tão bons como ele nisso. Pode-se ver na progressão das despesas do Estado.

[Zel]

http://globaleconomicanalysis.blogspot.ch/

Let's dive into Bernanke's second post of the day: Why are Interest Rates So Low?

Bernanke: Low interest rates are not a short-term aberration, but part of a long-term trend. As the figure below shows, ten-year government bond yields in the United States were relatively low in the 1960s, rose to a peak above 15 percent in 1981, and have been declining ever since. That pattern is partly explained by the rise and fall of inflation, also shown in the figure.

Mish: Inflation is only low if one ignores asset bubbles. The CPI does not factor in bubbles induced by monetary policy. The Bernanake and Greenspan Fed ignored the biggest bubble ever in housing for which the Fed has never apologized nor admitted any wrong doing. The effects of inflation are visible everywhere, except of course where the Fed looks.

Bernanke: If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense. But what matters most for the economy is the real, or inflation-adjusted, interest rate (the market, or nominal, interest rate minus the inflation rate). The real interest rate is most relevant for capital investment decisions, for example. The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed.

Mish: It is difficult to say precisely where interest rates would be in the absence of the Fed, but the answer is likely, surprisingly low. The reason is the Fed (central banks in general) coupled with government deficit spending and fractional reserve lending are the very source of inflation. Amusingly, the Fed bills itself as an "inflation fighting force" but it is a key determinant of inflation. Worse yet, and since the Fed is totally clueless about asset bubbles, it fails to see inflation in front of its nose.

Bernanke: To understand why [the Fed’s ability to affect real rates is transitory and limited], it helps to introduce the concept of the equilibrium real interest rate (sometimes called the Wicksellian interest rate, after the late-nineteenth- and early twentieth-century Swedish economist Knut Wicksell). The equilibrium interest rate is the real interest rate consistent with full employment of labor and capital resources, perhaps after some period of adjustment. Many factors affect the equilibrium rate, which can and does change over time. If the Fed wants to see full employment of capital and labor resources (which, of course, it does), then its task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate, or—more realistically—its best estimate of the equilibrium rate, which is not directly observable.

Mish: With that, the Fed admitted it is clueless about the alleged "equilibrium rate". Indeed it is not observable, nor is the concept of full employment known or observable. Government interference in the free markets, especially minimum wage laws grossly distort the level of full employment. Factor in changing consumer preferences and demographics, and it's a fool's mission to believe the Fed (any central bank), can come up with a realistic estimate to something Bernanke correctly admits is not directly observable.

Bernanke: When I was chairman, more than one legislator accused me and my colleagues on the Fed’s policy-setting Federal Open Market Committee of “throwing seniors under the bus” (to use the words of one senator) by keeping interest rates low. The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings. I was concerned about those seniors as well. But if the goal was for retirees to enjoy sustainably higher real returns, then the Fed’s raising interest rates prematurely would have been exactly the wrong thing to do.

Mish: It's not the interest rate policy directly that threw seniors under the bus. Rather, it's the Fed's inflation policy while ignoring the consequences of asset bubbles that threw everyone but those with first access to money under the bus. The Fed ignored an enormous housing bubble (Bernanke did not see it at all), then when housing crashed, the Fed lowered rates to save the banks. The overall action was as "necessary" as it was to  have a Fed sponsored housing bubble in the first place.

Bernanke: A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates “artificially low.” Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by “the markets.” The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere.

Mish: Bernanke's comment is preposterous. There was not always a Fed. And the market once set interest rates on its own accord. Moreover, there does not need to be a Fed any more than we need government central planners to determine steel production or the price of orange juice. The Fed certainly does have a choice.

Bernanke: So where should that be? The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate. There is absolutely nothing artificial about that!

Mish: It's as artificial as the Fed determining how much steel the mills should produce! In other words it's totally artificial. Besides, Bernanke even admitted the Fed does not know what the equilibrium rate is, and it ignores asset bubble when attempting to land on the unknowable and unobservable.

Is it any wonder the Fed has blown asset bubble after asset bubble with increasing amplitude over time?
Read more at http://globaleconomicanalysis.blogspot.com/#Pfg95hF4VP5rgfPj.99

[Lark]

LAWRENCE H. SUMMERS

On Secular Stagnation: A Response to Bernanke

Ben Bernanke has inaugurated his blog with a set of thoughtful observations on the determinants of real interest rates (see his post here) and the secular stagnation hypothesis that I have invoked in an effort to understand recent macroeconomic developments. 

I agree with much of what Ben writes and would highlight in particular his recognition that the Fed is in a sense a follower rather than a leader with respect to real interest rates –  since they are determined by broad factors bearing on the supply and demand for capital – and his recognition that equilibrium real rates appear to have been trending downward for quite some time. 

His challenges to the secular stagnation hypothesis have helped me clarify my thinking and provide an opportunity to address a number of points where I think there has been some confusion in the public debate.

Is Secular Stagnation all about the Zero Lower Bound on Nominal Interest Rates?

The essence of secular stagnation is a chronic excess of saving over investment.  The natural question for an economist to ask is how can such a chronic excess exist in flexible markets?  In particular, shouldn’t interest rates adjust to equate saving and investment at full employment?  The most obvious answer is that short term interest rates can’t fall below zero (or some bound close to zero) and this inhibits full adjustment. 

Ben is skeptical of the importance of this factor, noting that with a 2 percent inflation target real interest rates can fall to -2 percent.  True enough.  But, it is at least an open question whether central banks can always be credible in claiming they will hit their inflation targets.  Market measures of expected inflation suggest that throughout the industrial world inflation may well fall short of 2 percent for a decade or more.

Separately, it is worth noting that there may be other reasons why interest rate adjustment to equate saving and investment at full employment does not operate smoothly.  In situations where target saving is important, reductions in rates may increase rather than decrease saving, exacerbating imbalances.  Further, there are reasons for concern that protracted very low rates precipitate financial instability by increasing capitalization ratios, raising the duration of assets, encouraging risk taking to chase yield and reducing the financial discipline associated with loan coupon payments.

Do Real Rates below Zero Make Economic Sense?

Ben suggests not– citing my uncle Paul Samuelson’s famous observation that at a permanently zero or subzero real interest rate it would make sense to invest any amount to level a hill for the resulting saving in transportation costs.  Ben grudgingly acknowledges that there are many theoretical mechanisms that could give rise to zero rates. To name a few: credit markets do not work perfectly, property rights are not secure over infinite horizons, property taxes that are explicit or implicit, liquidity service yields on debt, and investors with finite horizons.

To use a phrase Ben has popularized in a different context, negative real rates are phenomenon that we observe in practice if not always in theory.  The paper by Hamilton, Harris, Hatzius, and West that he cites demonstrates that during the twentieth century, rates in America have been negative at least 30 percent of the time.  In Germany right now, the 10-year nominal rate is 18 basis points suggesting a negative real rate, and the rate is around 60 basis points for 30 years!  In Britain, yields on 50-year indexed bonds have been negative for long periods of time.

Were Bubbles an important Contributor to Previous Recoveries?

In support of the idea that the economy suffered from a chronic excess of saving, I have argued that the 2003-2007 recovery and quite possibly the late stages of the 1990s recovery were powered in significant part unsustainable financial conditions.  Ben is skeptical, relying on the work of Hamilton et. al (2015) to note that the positive effects of the housing bubble during the previous expansion were offset by an increase in the US trade deficit, and that bubbles were only modestly relevant in the late 1990s. 

This issue requires much more study.  I think that it will be hard to escape the conclusion that household debt grew at an unsustainable pace in the decade before the great financial crisis and that this was an important spur to growth.  And I am fairly confident that wealth effects associated with a booming stock market were important in the late 1990s.  As I discuss below, I agree with Ben that the open economy aspects are very important and that excess saving in substantial part has emanated from abroad.  I have always listed reserve accumulation and foreign demand for safe assets among the major factors acting to depress real interest rates.

How good a solution is expansionary fiscal policy?

Ben accepts the logic of my argument that if reducing rates to equate saving and investment at full employment is infeasible or likely to lead to financial instability, fiscal policy in general and public investment in particular is a natural instrument to promote growth.  But he expresses the concern that permanently expansionary fiscal policy may not be possible, given that the government cannot indefinitely expand its debt.  This issue is worth further theoretical exploration, but I think Ben greatly understates the scope for feasible fiscal policy for reasons that Brad Delong and I have considered in our 2012 BPEA paper.

Imagine a secular stagnation world with a zero real interest rate.  Then, government debt service is very cheap.   As long as a public investment project yields any positive return it will generate enough revenue to service the associated debt.  This effect will be magnified if there are any Keynesian fiscal stimulus effects of the project or if there are any hysteresis effects.  Notice that with sufficiently low real interest rates, even fiscal stimulus, which does not have supply effects, can pay for itself through mulitiplier effects.

This is not just a theoretical point.  The October 2014 IMF World Economic Outlook suggests that public investments in countries where interest rates are near the zero lower bound are likely to significantly reduce debt-to-gdp ratios.

The case for expansionary fiscal policy in economies with very low real interest rates is of course magnified if there are reasons to doubt that the central bank can act on its own to raise inflation expectations.  It may well be that in situations where the interest rates are trapped near zero –  such as those prevailing in Japan and Germany – expansionary fiscal policy reduces real rates by raising inflationary expectations.

What about Global Aspects?

With the benefit of hindsight, I wish I had been clearer in seeking to resurrect the secular stagnation hypothesis that one should take a global perspective.  Indeed, the lower level of rates, the greater tendency towards deflation, and inferior output performance in Europe and Japan suggests that the spectre of secular stagnation is greater for them than for the United States. 

Moreover, in a world with integrated capital markets real rates anywhere will depend on conditions everywhere.  Particularly in the 2003-2007 period it is appropriate to regard Ben’s savings glut coming from abroad as an important impediment to demand in the United States.  Ben and I are, I think, in agreement that it is important to think about the saving-investment balance not just for countries individually, but for the global economy. 

If there are more countries tending to have excess saving than there are tending towards excess investment, there will be a global shortage of demand.  In this case countries able to devalue their currencies will benefit from generating more demand.  Global mechanisms that concentrate on causing borrowing countries to adjust without seeking to shrink the surplus of surplus countries will tend to push the global economy towards contraction.

Successful policy approaches to a global tendency towards excess saving and stagnation will involve not only stimulating public and private investment but will also involve encouraging countries  with excess saving to reduce their saving or increase their investment.  Policies that seek to stimulate demand through exchange rate changes are a zero-sum game, as demand gained in one place will be lost in another.  Secular stagnation and excess foreign saving are best seen alternative ways of describing the same phenomenon.

Final Thoughts

I would like nothing better than to be wrong as Alvin Hansen was with respect to secular stagnation.  It may be that growth will soon take hold in the industrial world and allow interest rates and financial conditions to normalize.  If so, those like Ben who judged slow recovery to be a reflection of temporary headwinds and misguided fiscal contractions will be vindicated and fears of secular stagnation will have been misplaced.

But throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now.  So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment.  If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. 

Macroeconomists can contribute by moving beyond their traditional models of business cycles to contemplate the possibility of secular stagnation.

Summers

[Lark]

Ben S. Bernanke | March 31, 2015 11:00am

Why are interest rates so low, part 2: Secular stagnation
 
Three of the most important objectives for economic policy are:

Achieving full employment
Keeping inflation low and stable
Maintaining financial stability

Larry Summers’ secular stagnation hypothesis holds that achieving these three goals simultaneously may prove very difficult. (See Larry’s statement of the case and a collection of short pieces on the subject by prominent economists.)

The term “secular stagnation” was coined by Alvin Hansen in his 1938 American Economic Association presidential address, “Economic Progress and Declining Population Growth.” Writing in the latter stages of the Great Depression, Hansen argued that, because of apparent slowdowns in population growth and the pace of technological advance, firms were unlikely to see much reason to invest in new capital goods. He concluded that tepid investment spending, together with subdued consumption by households, would likely prevent the attainment of full employment for many years.

Hansen proved quite wrong, of course, failing to anticipate the postwar economic boom (including both strong population growth—the baby boom—and rapid technological progress). However, Summers thinks that Hansen’s prediction was not wrong, just premature. For a number of reasons—including the contemporary decline in population growth, the reduced capital intensity of our leading industries (think Facebook versus steel-making), and the falling relative prices of capital goods—Larry sees Hansen’s prediction of limited investment in new capital goods and an economy that chronically fails to reach full employment as relevant today. If the returns to capital today are very low, then the real interest rate needed to achieve full employment (the equilibrium real interest rate) will likely also be very low, possibly negative. The recent pattern of slow economic growth, low inflation, and low real interest rates (see below) motivates and is consistent with the secular stagnation hypothesis.

Notice, by the way, that the secular stagnation story is about inadequate aggregate demand, not aggregate supply. Even if the economy’s potential output is growing, the Hansen-Summers hypothesis holds that depressed investment and consumption spending will prevent the economy from reaching that potential, except perhaps when a financial bubble (like the housing bubble of the 2000s) provides an additional push to spending. However, Summers argues that secular stagnation will ultimately reduce aggregate supply as well, as growth in the economy’s productive capacity is restrained by slow rates of capital formation and by the loss of workers’ skills caused by long-term unemployment.

The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. (I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.)

Suppose that, because of secular stagnation, the economy’s equilibrium real interest rate is below minus 2 percent and likely to stay there. Then the Fed alone cannot achieve full employment unless it either (1) raises its inflation target, thereby giving itself room to drive the real interest rate further into negative territory by setting market rates at zero; or (2) accepts the recurrence of financial bubbles as a means of increasing consumer and business spending. It’s in this sense that the three economic goals with which I began—full employment, low inflation, and financial stability—are difficult to achieve simultaneously in an economy afflicted by secular stagnation.

Larry’s proposed solution to this dilemma is to turn to fiscal policy—specifically, to rely on public infrastructure spending to achieve full employment. I agree that increased infrastructure spending would be a good thing in today’s economy. But if we are really in a regime of persistent stagnation, more fiscal spending might not be an entirely satisfactory long-term response either, because the government’s debt is already very large by historical standards and because public investment too will eventually exhibit diminishing returns.

Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today. First, as I pointed out as a participant on the IMF panel at which Larry first raised the secular stagnation argument, at real interest rates persistently as low as minus 2 percent it’s hard to imagine that there would be a permanent dearth of profitable investment projects.

As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable.

For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period. (I concede that there are some counterarguments to this point; for example, because of credit risk or uncertainty, firms and households may have to pay positive interest rates to borrow even if the real return to safe assets is negative. Also, Eggertson and Mehrotra (2014) offers a model for how credit constraints can lead to persistent negative returns. Whether these counterarguments are quantitatively plausible remains to be seen.)

Second, I generally agree with the recent critique of secular stagnation by Jim Hamilton, Ethan Harris, Jan Hatzius, and Kenneth West. In particular, they take issue with Larry’s claim that we have never seen full employment during the past several decades without the presence of a financial bubble. They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output. They argue that recent slow growth is likely due less to secular stagnation than to temporary “headwinds” that are already in the process of dissipating. During my time as Fed chairman I frequently cited the economic headwinds arising from the aftermath of the financial crisis on credit conditions; the slow recovery of housing; and restrictive fiscal policies at both the federal and the state and local levels (for example, see my August and November 2012 speeches.)

My greatest concern about Larry’s formulation, however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home. The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports. (For intuition about the link between foreign investment and exports, think of the simple case in which the foreign investment takes the form of exporting, piece by piece, a domestically produced factory for assembly abroad. In that simple case, the foreign investment and the exports are equal and simultaneous.) Increased exports would raise production and employment at home, helping the economy reach full employment. In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy. Of course, all else is not equal; financial capital does not flow as freely across borders as within countries, for example. But this line of thought opens up interesting alternatives to the secular stagnation hypothesis, as I’ll elaborate in my next post.

bernanke

[Lark]

Liquidity Traps, Local and Global (Somewhat Wonkish)
APRIL 1, 2015 6:12 PM April 1, 2015 6:12 pm

There’s been a really interesting back and forth between Ben Bernanke and Larry Summers over secular stagnation. I agree with most of what both have to say. But there’s a substantive difference in views, in which Bernanke correctly, I’d argue, criticizes Summers for insufficient attention to international capital flows – but then argues that once you do allow for international capital movement it obviates many of the secular stagnation concerns, which I believe is wrong.

As it happens, the role of capital flows in the logic of liquidity traps is an issue I tackled right at the beginning, back in 1998; and I’ve been trying to work out how it plays into the discussion of secular stagnation, which is basically the claim that countries can face very persistent, quasi-permanent liquidity traps. So I think I may have something useful to add here.

Start with Bernanke’s critique of Summers. The most persuasive evidence that the US may face secular stagnation comes from the lackluster recovery of 2001-2007. We experienced the mother of all housing bubbles, fueled by a huge, unsustainable rise in household debt – yet all we got was a fairly unimpressive expansion by historical standards, and little if any inflationary overheating. This would seem to point to fundamental weakness in private demand. But one reason for the sluggish growth in demand for U.S.-produced goods and services was a huge trade deficit, the counterpart of huge reserve accumulation in China and other emerging markets. So Bernanke argues that what Summers sees as evidence of secular stagnation actually reflects the global savings glut.

That’s a good point. But Bernanke then goes on, as I understand him, to argue that international capital flows should solve the problem of secular stagnation unless if affects the world as a whole, because capital can seek higher returns abroad; he also argues that the global savings glut is mainly a thing of the past, and that in any case such problems can be addressed mainly by putting pressure on foreign governments to open their capital accounts and stop pursuing policies that promote excessive current account surpluses. And in these assertions, I’d suggest, he goes somewhat astray.

Let’s first ask whether the possibility of investing abroad obviates the problem of liquidity traps in general (as opposed to secular stagnation.) To do this, consider the analysis I laid out a couple of months ago when I was trying to think about the dollar and U.S. recovery, but run it in reverse. Suppose that a country or currency area – let’s call it Europe — suffers a decline in aggregate demand. And suppose that this threatens to push the Wicksellian natural rate of interest – the rate of interest at which desired savings and investment would be equal at full employment — below zero. Can this happen if there are positive-return investments outside of Europe?

You might think not: as long as there are positive-return investments abroad, capital will flow out. This will drive down the value of the euro, increasing net exports, and raising the Wicksellian natural rate. So you might think that you can’t have a liquidity trap in just one country, as long as capital is mobile.

But this isn’t right if the weakness in European demand is perceived as temporary (where that could mean a number of years). For in that case the weakness of the euro will also be seen as temporary: the further it falls, the faster investors will expect it to rise back to a “normal” level in the future. And this expected appreciation back toward normality will equalize expected returns after a decline in the euro that is well short of being enough to raise the natural rate of interest all the way to its level abroad. International capital mobility makes a liquidity trap in just one country less likely, but it by no means rules that possibility out.

Still, secular stagnation – as opposed to liquidity-trap analysis in general – is concerned with excess saving that lasts a very long time, that’s quasi-permanent. So in that case wouldn’t we expect capital mobility to be decisive? Shouldn’t it be impossible to have secular stagnation in just one country?

When I first approached this issue, that’s what I thought. But I immediately ran up against a big real-world counterexample: Japan. Japan has effectively been at the zero lower bound since the 1990s, and it wasn’t until the end of 2008 that the rest of the advanced world joined it there. So why didn’t capital flood out of Japan in search of higher returns, driving the yen down and boosting Japan out of its trap?

The answer is that real returns in Japan weren’t exceptionally low – they were, in fact, more or less equal to those abroad. But this equalization of real rates didn’t occur through an equalization of Wicksellian natural rates. Instead, what happened was that persistent deflation in Japan, combined with the zero lower bound, kept the actual real interest rate well above the Wicksellian rate. Here’s the data from 1996 to 2008, with inflation measured by the GDP deflator and interest rates measured by 6-month Libor:

OK, it’s not full equalization. but not too far off — despite being at the zero lower bound for many years, Japan ended up offering more or less competitive real returns.

The moral of the Japanese example is that if other countries are managing to achieve a moderately positive rate of inflation, but you have let yourself slip into deflation or even into “lowflation”, you can indeed manage to find yourself in secular stagnation even if the rest of the world offers positive-return investment opportunities.

Which brings me to the future of the global savings glut.

As Bernanke notes, as far as big current account surpluses go, Germany is the new China. However, he argues that the large current account surplus of the euro area as a whole is a temporary phenomenon driven by cyclical weakness in the euro periphery, and therefore not likely to be a source of persistent trouble.

But look at what bond markets are saying! German interest rates – presumably an indicator of perceived euro safe rates – are negative out to seven years; the 10-year rate is only 16 basis points. This is telling us that markets expect the euro area economy to be depressed, and ECB rates very low, for many years to come. In effect, European bond markets are flashing a secular stagnation warning.

And this makes sense: the case for secular stagnation in Europe is considerably stronger than it is for the U.S.. Working-age population is declining, Japan-style; the euro system, with a shared currency but no fiscal integration, arguably imparts a strong contractionary bias to fiscal policy; and core inflation is already down to just 0.6 percent.

By the logic I’ve already laid out, this should imply a persistently very weak euro and a persistently large European current account surplus, as Europe in effect tries to export its secular stagnation – a process limited only by the way low inflation or deflation interact with the zero lower bound to keep interest rates from falling to their Wicksellian equilibrium rate.

Sure enough, if we try to figure out the market’s implied prediction for the euro, it seems to imply persistent weakness. The euro/dollar rate is down around 30 percent from its level before Europe began running such large surpluses. Meanwhile, German 10-year real interest rates are around -1, while U.S. real rates are slightly positive; this implies that markets expect the euro to recover only a third or so of its recent decline over the next decade.

What this in turn implies is that even if you downplay domestic U.S. weakness and focus on the export of capital from other countries, especially Germany, there’s no good reason to believe that this new version of the global savings glut will end any time soon.

Which brings me to the policy debate. Bernanke seems to be saying that if there is a problem, it can be solved by cracking down on currency manipulation:

[T]he 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.

If my analysis of the European problem is right, however, this is pretty much irrelevant: Europe’s trade and capital imbalances are the result of fundamental weakness of domestic demand, which is then exported to the rest of us, who aren’t that strong either. If true, this says that we have a problem that must be solved with policies that boost demand. So on the policy debate, I come down firmly on the Summers side.

krugman

[Zel]

sempre "boost demand". mas os modelos dele nem sequer levam em conta a divida no sistema, que tal corrigir isso ? parece-me que ha um problema em ignorar a divida e pedir sempre por "boost demand"

[Lark]

Why are interest rates so low, part 3: The Global Savings Glut
 
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 to government 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.

bernanke