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The "American Hooliganism" on Which China and Russia Rely

Thursday, 05 May 2011 08:30 By Paul Krugman, Truthout | Op-Ed
The American Hooliganism on Which China and Russia Rely

(Image: CartoonArts International / The New York Times Syndicate)

Vladimir Putin thinks we’re hooligans.

Remarking on monetary policy in the United States, the Russian prime minister said earlier this month, according to The Wall Street Journal: “Look at their trade balance, their debt, and budget. They turn on the printing press and flood the entire dollar zone — in other words, the whole world — with government bonds. There is no way we will act this way anytime soon. We don’t have the luxury of such hooliganism.”

The funny thing is that Russia, like other emerging markets, is suffering from inflation precisely because it doesn’t want to let the United States reduce its trade deficit. Capital wants to flow to the emerging markets, with the counterpart of that flow being a move on their part into trade deficit, while the United States reduces its trade deficit. But the necessary counterpart of that move is a real appreciation on the part of the emerging markets — a rise in the relative prices of their goods and services. They could let their currencies rise; if they won’t, the real appreciation will take place via inflation, which is what is happening.

What’s really weird, of course, is the large number of analysts in the United States who are taking the side of China and Russia in this business. Why do they hate America?

Standard & Poor’s Warning

The credit ratings firm has warned that it might downgrade the United States one of these days. What Standard & Poor’s said doesn’t seem too silly: it lays stress, rightly, on political gridlock. The point should be that the United States is perfectly capable both of running large deficits now and getting its fiscal house in order over time; but not if the parties cannot agree on any kind of solution. What we do to spending this year or next is irrelevant.

That said, it’s worth remembering that S.&P. downgraded Japan in 2002 — and look at the graphic to see what happened.

Japanese bonds became known as the “trade of death,” because people kept betting on an interest rate rise, and it kept not happening.

So, no big deal.

Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including "The Return of Depression Economics" (2008) and "The Conscience of a Liberal" (2007). Copyright 2011 The New York Times.


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The "American Hooliganism" on Which China and Russia Rely

Thursday, 05 May 2011 08:30 By Paul Krugman, Truthout | Op-Ed
The American Hooliganism on Which China and Russia Rely

(Image: CartoonArts International / The New York Times Syndicate)

Vladimir Putin thinks we’re hooligans.

Remarking on monetary policy in the United States, the Russian prime minister said earlier this month, according to The Wall Street Journal: “Look at their trade balance, their debt, and budget. They turn on the printing press and flood the entire dollar zone — in other words, the whole world — with government bonds. There is no way we will act this way anytime soon. We don’t have the luxury of such hooliganism.”

The funny thing is that Russia, like other emerging markets, is suffering from inflation precisely because it doesn’t want to let the United States reduce its trade deficit. Capital wants to flow to the emerging markets, with the counterpart of that flow being a move on their part into trade deficit, while the United States reduces its trade deficit. But the necessary counterpart of that move is a real appreciation on the part of the emerging markets — a rise in the relative prices of their goods and services. They could let their currencies rise; if they won’t, the real appreciation will take place via inflation, which is what is happening.

What’s really weird, of course, is the large number of analysts in the United States who are taking the side of China and Russia in this business. Why do they hate America?

Standard & Poor’s Warning

The credit ratings firm has warned that it might downgrade the United States one of these days. What Standard & Poor’s said doesn’t seem too silly: it lays stress, rightly, on political gridlock. The point should be that the United States is perfectly capable both of running large deficits now and getting its fiscal house in order over time; but not if the parties cannot agree on any kind of solution. What we do to spending this year or next is irrelevant.

That said, it’s worth remembering that S.&P. downgraded Japan in 2002 — and look at the graphic to see what happened.

Japanese bonds became known as the “trade of death,” because people kept betting on an interest rate rise, and it kept not happening.

So, no big deal.

Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including "The Return of Depression Economics" (2008) and "The Conscience of a Liberal" (2007). Copyright 2011 The New York Times.


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