Thursday, February 24, 2005

The Overstretch Myth

Fabulous piece on the U.S. current account deficit in Foreign Affairs. You can just tell, when the author frames it as an issue of global *confidence* in our assets, that the article has a Cato Institute type of view.

Discussion of the United States' "net foreign debt" conjures up images of countries such as Argentina, Brazil, and Turkey, evoking the currency collapses and economic crises they have suffered as models for a coming U.S. meltdown. There are key differences, however, between those emerging-market cases and the current condition of the global hegemon. The United States' external liabilities are denominated in its own currency, which remains the global monetary standard, and its economy remains on the frontier of global technological innovation, attracting foreign capital as well as immigrant labor with its rapid growth and the high returns it generates for investors.

I suggest you read the whole thing.


Hey Pioneers said...

Nice allusion to the American economy as a frontier. Which it is.

marco said...

great ending too:

Only one development could upset this optimistic prognosis: an end to the technological dynamism, openness to trade, and flexibility that have powered the U.S. economy. The biggest threat to U.S. hegemony, accordingly, stems not from the sentiments of foreign investors, but from protectionism and isolationism at home.