1/8
Good piece (as always) by @adam_tooze that helps clarify the global financial implications of the Russian crisis and on the effect it may have on the willingness of China, Russia, etc. to hold dollars in the future.
adamtooze.substack.com/p/chartbook-89…
Good piece (as always) by @adam_tooze that helps clarify the global financial implications of the Russian crisis and on the effect it may have on the willingness of China, Russia, etc. to hold dollars in the future.
adamtooze.substack.com/p/chartbook-89…
2/8
As I see it, what complicates their abilities to choose is that countries that rely on large persistent trade surpluses to resolve domestic demand imbalances must by definition acquire foreign assets in exchange for these surpluses.
As I see it, what complicates their abilities to choose is that countries that rely on large persistent trade surpluses to resolve domestic demand imbalances must by definition acquire foreign assets in exchange for these surpluses.
3/8
If they do not want to risk acquiring these assets in the US or in the "West" (i.e. in Europe, Canada, Australia, etc.) then they only have four serious options.
If they do not want to risk acquiring these assets in the US or in the "West" (i.e. in Europe, Canada, Australia, etc.) then they only have four serious options.
4/8
First, they can force through the very difficult reforms that eliminate the domestic imbalances. Along with serious political changes this would also result in slower growth, a badly weakened tradable goods sector, and perhaps rising unemployment.
First, they can force through the very difficult reforms that eliminate the domestic imbalances. Along with serious political changes this would also result in slower growth, a badly weakened tradable goods sector, and perhaps rising unemployment.
5/8
Second, they can eliminate their surpluses by stockpiling gold and other commodities, although the extent of stockpiling would drive up prices against them and make it all but impossible ever to offload them.
Second, they can eliminate their surpluses by stockpiling gold and other commodities, although the extent of stockpiling would drive up prices against them and make it all but impossible ever to offload them.
6/8
Third, each country can in principle exchange its surpluses for assets in China, Russia, Iran and other countries that want out of the current system, but of course collectively they cannot do so except by collectively running balanced trade.
Third, each country can in principle exchange its surpluses for assets in China, Russia, Iran and other countries that want out of the current system, but of course collectively they cannot do so except by collectively running balanced trade.
7/8
And fourth, they can exchange their surpluses for assets in developing countries. This would probably require far more risk than any of them are willing to accept, however, and the resulting capital flows would almost certainly overwhelm developing economies.
And fourth, they can exchange their surpluses for assets in developing countries. This would probably require far more risk than any of them are willing to accept, however, and the resulting capital flows would almost certainly overwhelm developing economies.
8/8
That's the problem. It is easy to talk about what these countries might want to do if we assume that there is an infinite ability for the world to absorb their savings imbalances, but there isn't.
That's the problem. It is easy to talk about what these countries might want to do if we assume that there is an infinite ability for the world to absorb their savings imbalances, but there isn't.
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