| Since 1999, the US current account deficit and global imbalances have been increasing rapidly. Many economists worry about the sustainability and consequences of the global imbalances so that they recommend rebalancing the economic in order to avoid financial crisis. Their agenda are mostly the same: contracting monetary and budgetary policy, exchange rate depreciation and trade policies. As the discussion progresses, the US current account deficit and global imbalances have no response, because the US government didn't adopt the recommendation of the economists. Furthermore, if we go deeply into the history, we will find that the several periods of increasing global imbalances coincident with expansionary macroeconomic policies as a whole.I deduce from the history that US must get something from global imbalances, or he will not leave the global imbalances alone. What can US get from global imbalances? In order to figure out the secret, reviewing the global imbalances theories is necessary. We find that US financial advantage didn't cause global imbalances; the casual direction is quite the reverse. Based on the review, we get the message that US financial industry can benefit from the global imbalances as well as the US economic. However, the benefits US can get from global imbalances are quite different in particular period. From the World War Two till the early 1980s, the US current account deficit has little influences on the US financial industry. The obstacle behind is the US financial regulation policies. Although other surplus countries have demands on the US financial product, the Q quotation and IET raise the costs of supplying financial product to foreigners to a prohibitive level. After these policies are abolished, the US financial industries are pushed by these non-exhausting demands. Since 1990s, the benefits get larger and larger and we can learn it from the soaring US security market indexes, the large return differentials and the booming new economics.The other benefit that US get from imbalances is better control on price level. We can show it from the macro level or the industry level. From the macro level, although surplus dollar return to US, the basic principle between current account and money supply still exist in US. The current account deficit will reduce the money supply of America. If the price level is mostly influenced by money supply, we can say that the global imbalances can help US control its price level. From the industry level, US transfer the labor-intensive and some capital-intensive industries to other countries. According to the trade theories, the price level of these industries will be reduced by imports. The empirical analysis mostly supports the viewpoint above. In all the global imbalances can help US to control its price level.US can promote growth and stabilize inflation through current account deficit so that we believe the optimal US current account is quite different from other countries. Based on the benefits US gets, I restructure the lost function of US government where current account position is supposed to be the most important factor.Calculating the optimal current account value of specific period, we believe that the value is negative for the time when global imbalances got worsen rapidly. To draw pieces together, we need to introduce a proposition that economic policy of real world matches the welfare analysis for new institutional economic strongly oppose this proposition and cite many examples to support their view. After that, we can deduce that global imbalance may be caused by the US macroeconomic benefits which lead to expansionary economic policies. I call the theories as US economic benefits view of global imbalances. This view is connected with the other views and different from them too. It helps us go deeply down into the causes of global imbalances. If the US economic benefits view is right, the global imbalances will be de decided by the US benefits. The larger the benefits, the larger global imbalances for US economic policies will prone to make it larger. According to this view, one of the reason global rebalances will come into being is that US benefits from current account deficits get smaller or even become negative, because the US will have to adjust his attitude and economic policies after that. The periphery can't do much about the imbalances.We believe that the US optimal current account value is negative since 1990, so the economic policies must match the analysis. We need to go into details about this question: if US macro policies cause current account deficits. The answer is yes. US didn't worry about external imbalances, his objective is to promote economic growth internal, fight against the recession risk and reduce unemployment rate. Although the dollar depreciates a lot from 2001 to 2004, it did not mean that US try to reduce external imbalances. Once we go back to the floating exchange regime US adopt, it become obvious that the expansionary monetary policy, the negative shock and investors'confidence lead to the depreciation. Moreover, depreciating dollar will switch demand form imports products to domestic made ones; depreciating dollar will help shrink US debt for most of the US debt are nominated in dollar. After the macro policies achieve its objectives, the US once again raises its federal fund rate. The change make the dollar appreciate again. It's common to us all that dollar appreciation will worsen its current account. We can tell that US didn't want to reduce external imbalances.After subprime mortgage crisis, many scholars judge the event from different perspective. They may got some shells but forget about the sea. Subprime crisis is closely connected with global imbalances. The periphery is not content with US government debt with low return rates and tries to buy some financial products with better profits. The huge demand exceeds the supply power of US financial system so that a bubble come into being and finally bust. The fuse is that US change macro policies and raise the federal fund rates. However, even if the US haven't change the direction of monetary policies, the bubble would still bust. As a result, the subprime mortgage crisis is caused by global imbalances to some extent.Subprime mortgage crisis greatly affected the US macro benefits, the investors'confidence about the US financial market may break down so that the periphery will invest less in the US financial markets even if they can still get lots of surplus dollar. The optimal current account value becomes larger which means US need to improve the current account. However, US government doesn't want to experience recession so that he will make expansionary policies to stimulate growth even if the optimal value becomes larger. Once they realize the situation, they may change the macro policies and improve the current account as well.According to the US economic benefits view, there are two implications for periphery countries. First, the US macro policies may make at the expense of periphery countries'interest. Second, periphery can't wipe out global imbalances by themselves. Consequently, periphery need to adjust and must try to choose the best way to do so. Different path may bring different risks and benefits.Generally, there are two ways periphery can avoid the loss caused by the US government policies. First, every country takes care of individual business. Second, they cooperate to do so. Once they do it alone, they may incur greater loss. For example, if A country appreciate against dollar, he may appreciate against other periphery countries too so that he loss competence in exports. Once we compare the European Union and East Asia, it's quite clearly that EU does a better job at reduce dollar reserves. I think that cooperation is the best way for the periphery countries. |
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