Economists Warn Growing Trade Imbalances Increase Risk of Global Recession

**Prince** · 09-13-2006, 08:23 AM

Economists Warn Growing Trade Imbalances Increase Risk of Global Recession
By Daniel Schearf
13 September 2006

Economists have warned that growing trade imbalances between high-income countries such as the United States and export-driven economies such as China could lead to a global recession. The International Monetary Fund this month echoed those concerns. The issue is expected to be high on the agenda of the annual meeting of the World Bank and the IMF, which begins September 19 in Singapore.

Gurkha soldier stands guard outside venue of IMF-World Bank meetings in Singapore Gurkha soldier stands guard outside venue of IMF- World Bank meetings in Singapore The global economy is set to grow by around five percent this year, but global trade and fiscal imbalances are also on the rise. Many economists say if they do not start soon to gradually shrink, economic growth across the world could fall abruptly.

The U.S. trade deficit, the highest in the world, is growing at $100 billion a year and looks to set surpass $800 billion this year.

"The flip side of that is big surpluses around the world. China is now running the world's largest trade surplus, this year probably coming in about $250 billion," said Fred Bergsten, director of the International Institute for Economics in Washington, D.C. "Japan is second, Europe, the NAFTA countries are running small trade surpluses as well. And the other big trade surplus is now in the oil exporting countries because of high energy prices, Saudi Arabia, Russia, other major oil exporters also running surpluses."

Bergsten says this imbalance cannot last forever.

"The correction of these imbalances, which history would suggest is inevitable and can come in a very disruptive way, could push the world economy as a whole sharply downward, possibly into a global recession," he said.

Bergsten and many Western economists say the U.S. dollar is overvalued while Asian currencies such as the Chinese yuan and the Japanese yen are undervalued. He says this misalignment will have to be corrected one day, and if the correction is too sharp it could make imports into the U.S. far more expensive, push up interest rates and weaken economies across the globe.

The largest trade imbalance, between the United States and China, is of particular concern as the two economies, one the largest and the other the fastest growing in the world, have become more interdependent.

The U.S. government says trade between the two countries topped $285 billion last year - and that the trade deficit with China was $202 billion.

Jeffery Frankel is an economics professor at Harvard University. He says the imbalance is encouraging protectionism among U.S. politicians, business owners and workers, which could further upset healthy trade.

"People in Congress, rightly or wrongly, are very upset about this, and China has become sort of what we call a scapegoat," he said. "A lot of people are sort of blaming China in the way that we used to blame Japan 10 or 20 years ago. And there is a potential for damaging legislation to pass, it would be damaging to us and to our trade partners as well."

Many trade experts warn that restrictive tariffs or quotas on Chinese goods would hurt U.S. consumers, who would have to pay higher prices, and could encourage China to respond with trade barriers of its own.

Beijing argues its cheap exports benefit American consumers and that many of the companies exporting from China are foreign enterprises.

Many experts - in China and outside - say the yuan needs to be revalued gradually to avoid triggering inflation and causing a severe drop in exports, which could lead to higher unemployment and social unrest.

The trade imbalances contribute to another imbalance - many exporting countries essentially are hoarding foreign exchange reserves - most of it in dollars. Essentially, they are saving the money made from trade, instead of spending it to improve public services and infrastructure, or to import goods.

But if the U.S. dollar weakens suddenly, or U.S. investments become unpopular, those foreign reserves will lose value. And the United States, which has financed its trade deficit by borrowing, could find it no longer can borrow overseas.

Many economists say the United States needs to reduce its spending and increase interest rates to encourage citizens to save more money and make the country less reliant on foreign capital flows. At the same time, surplus countries such as China need to rely less on exports and encourage domestic spending to reduce imbalanced trade.

At the annual World Bank and International Monetary Fund meeting in Singapore this month, trade and fiscal imbalances are expected to be high on the agenda.

China has the world's largest foreign exchange reserves at over $875 billion.

Already, IMF officials have said China should allow the yuan to fluctuate more in value, while the World Bank wants Beijing to spend more on health, education, and other social infrastructure so Chinese consumers will be comfortable spending their money.

Economists say a coordinated approach is needed to ensure a smooth unwinding of trade imbalances.

Earlier this year, the IMF created a multilateral consulting mechanism to try to narrow imbalances by encouraging trading partners to coordinate economic policies.

So far, the consultations have been limited to bilateral discussions between the Fund and individual governments - China, the European Union, Japan, Saudi Arabia, and the United States. However, the Fund's chief Rodrigo Rato says they plan to hold roundtables with representatives from all these countries in the coming months.

**MyK** · 09-13-2006, 08:24 AM

protectionist propaganda!

**BigDyl** · 09-13-2006, 08:28 AM

True Story, there is alot of money to be made by ignoring Global Warming, SON!

**MyK** · 09-13-2006, 08:29 AM

Originally Posted by BigDyl

True Story, there is alot of money to be made by ignoring Global Warming, SON!

what?!?!?!?!

**Prince** · 09-13-2006, 08:39 AM

so, you do not think we are headed for a recession? there are several "economists" stating this.

**TJ Cline** · 09-13-2006, 08:42 AM

The crash of 1929 is nothing compared to what is coming.

**tucker01** · 09-13-2006, 08:51 AM

Originally Posted by Robert DiMaggio

so, you do not think we are headed for a recession? there are several "economists" stating this.

I think you are already starting to see a turn in the economy. As for how bad, guess we will have to wait and see.

**Big Smoothy** · 09-13-2006, 08:55 AM

Myk,

I don't think it's protectionist propaganda.

Many economists are saying similar things.

Duncans' the Dollar Crisis.

It is an issue to think about.

And Robert: great OP.

**MyK** · 09-13-2006, 09:02 AM

Originally Posted by Robert DiMaggio

so, you do not think we are headed for a recession? there are several "economists" stating this.

of course we're headed for a recession. we have to be, it is part of the normal business cycle. its like saying christmas is coming except we dont know when. Now the severity of the recession is of course what we are concerned about but IMO blaming china is nothing but propaganda to sway public opinoin against china. you see china is headed towars being the worlds next super power. maybe not in our life time, but as soon as they get their infrastructure in and quality of life upped there will be no stoping them. So if we begin to hate them now, it will be easier to go to war with them in 20 years and stop them taking over as the next super power.

IMO the real threat that is facing the western worlds economy is education. If you are to look in any trade or medical journal I bet that atleast 75% of the authors of the most cutting edge technology are from the east. this is because the east are not afraid to dump the low performing students and focus on the brightest, just look at all the suicide rates of students in japan who dont make the cut. Now in the west we like to take a more social approach to education and make it easier for everyone to pass (because its not nice if someone is left out). And this is destroying us because our brightest are not challenged and pushed, and are not performing as well as there counterparts in the east.

It is the scientist who spur invention and create new industry, and if things keep going the way they are the east will be dominating the west when my generation are the leaders of the world. since they got educated at school while we were given a degree for attendance. Then we will see a recression, when the east controls the newest industries and the west make corn!

**MyK** · 09-13-2006, 09:04 AM

Originally Posted by ForemanRules

The crash of 1929 is nothing compared to what is coming.

I doubt we will see a crash like that ever again, the economy diversified globally and the public doesnt have the risk that it did!

**TJ Cline** · 09-13-2006, 09:09 AM

Originally Posted by MyK

I doubt we will see a crash like that ever again, the economy diversified globally and the public doesnt have the risk that it did!

I think you and many more will make jumping out of windows all the rage again. Do you also want to tell me about a unsinkable ship.

**BigDyl** · 09-13-2006, 09:21 AM

Originally Posted by ForemanRules

I think you and many more will make jumping out of windows all the rage again. Do you also want to tell me about a unsinkable ship.

**BigDyl** · 09-13-2006, 09:22 AM

Originally Posted by MyK

of course we're headed for a recession. we have to be, it is part of the normal business cycle. its like saying christmas is coming except we dont know when. Now the severity of the recession is of course what we are concerned about but IMO blaming china is nothing but propaganda to sway public opinoin against china. you see china is headed towars being the worlds next super power. maybe not in our life time, but as soon as they get their infrastructure in and quality of life upped there will be no stoping them. So if we begin to hate them now, it will be easier to go to war with them in 20 years and stop them taking over as the next super power.

IMO the real threat that is facing the western worlds economy is education. If you are to look in any trade or medical journal I bet that atleast 75% of the authors of the most cutting edge technology are from the east. this is because the east are not afraid to dump the low performing students and focus on the brightest, just look at all the suicide rates of students in japan who dont make the cut. Now in the west we like to take a more social approach to education and make it easier for everyone to pass (because its not nice if someone is left out). And this is destroying us because our brightest are not challenged and pushed, and are not performing as well as there counterparts in the east.

It is the scientist who spur invention and create new industry, and if things keep going the way they are the east will be dominating the west when my generation are the leaders of the world. since they got educated at school while we were given a degree for attendance. Then we will see a recression, when the east controls the newest industries and the west make corn!

True Story, it looks like canadians aren't pushed either, you haven't commited suicide!

**MyK** · 09-13-2006, 09:24 AM

Originally Posted by ForemanRules

I think you and many more will make jumping out of windows all the rage again. Do you also want to tell me about a unsinkable ship.

Please you have no idea what your talking about using broad general metaphors as if they are some kind of intelligent argument. I would never debate a steroid discussion with you, so leave the finance and economic discussions to me!

Due to the technological advancement of securitization of all of our money markets, we have substantioally less political and/or market uncertainty. All of our securitize also have substacially less moral hazard and adverse selection due to supply and demand and public legislation.

these factors, or lack of, along with the protectionalism were the major factors that cause the disintermediation and bank panics of 1929 and led to a downward spiral and the crash in october. I agree I should never say never, but its like comparing a 1920's model A with a 2006 top of the line lexus!

**MyK** · 09-13-2006, 09:26 AM

Originally Posted by BigDyl

True Story, it looks like canadians aren't pushed either, you haven't commited suicide!

dont you have a screen saver or printer to install or something???

**TJ Cline** · 09-13-2006, 09:27 AM

Originally Posted by MyK

Please you have no idea what your talking about using broad general metaphors as if they are some kind of intelligent argument. I would never debate a steroid discussion with you, so leave the finance and economic discussions to me!

Due to the technological advancement of securitization of all of our money markets, we have substantioally less political and/or market uncertainty. All of our securitize also have substacially less moral hazard and adverse selection due to supply and demand and public legislation.

these factors, or lack of, along with the protectionalism were the major factors that cause the disintermediation and bank panics of 1929 and led to a downward spiral and the crash in october. I agree I should never say never, but its like comparing a 1920's model A with a 2006 top of the line lexus!

; balance sheet shocks;

I do have an idea what I'm talking about son, when you grow up you might also.

**DOMS** · 09-13-2006, 09:44 AM

Originally Posted by MyK

I doubt we will see a crash like that ever again, the economy diversified globally and the public doesnt have the risk that it did!

Good Lord, someone with a sense of modern economics.

If we are headed for a recession, it'll have less to do with a changing environment and more with a dumb ass President.

In any case, so the economy is going down...whoopdie-fucking-doo. The economy is cyclical. It goes up and the it goes down and then up again, ad nauseum. A static economy is really a dead economy.

**Doublebase** · 09-13-2006, 09:49 AM

So should I wait to buy a house then?

**DOMS** · 09-13-2006, 09:52 AM

Originally Posted by Doublebase

So should I wait to buy a house then?

Yes. That bubble is about to bust. Rising interest rates and a falling economy aren't good for housing prices.

**Prince** · 09-13-2006, 10:19 AM

Originally Posted by Doublebase

So should I wait to buy a house then?

it is still a "buyer's market" and 30 year fixed rates are steady at about 6.5%...buy now!

**BigDyl** · 09-13-2006, 11:46 AM

Originally Posted by Robert DiMaggio

it is still a "buyer's market" and 30 year fixed rates are steady at about 6.5%...buy now!

Is that good?

**Doublebase** · 09-13-2006, 11:52 AM

Originally Posted by BigDyl

Is that good?

Do you rent Dyl or still live at home?

**TJ Cline** · 09-13-2006, 11:53 AM

Originally Posted by Doublebase

Do you rent Dyl or still live at home?

ROFLLAWX100,000,000,000

**maniclion** · 09-13-2006, 12:31 PM

Originally Posted by MyK

I doubt we will see a crash like that ever again, the economy diversified globally and the public doesnt have the risk that it did!

Don't be so smug in your securities blanket, I happened to get a chance to watch a Documentary last night about F. Scott Fitzgerald and The Great Gatsby which was a prophetic look at what was to come in 1929. Towards the end they were looking at the comparisons of life then and now and the new rich springing up all over the place now just like in Gatsby. They had feelings that we could be headed towards a crash that makes the Titanic look like a toy in a bath tub, Hunter Thompson said something like that, then he said "Where's the Iceberg", scary shit.

Comes on again Sept. 24 on Ovation

**Prince** · 09-13-2006, 01:47 PM

Originally Posted by BigDyl

Is that good?

yes.

**boilermaker** · 09-13-2006, 01:52 PM

Originally Posted by Doublebase

So should I wait to buy a house then?

Don't ever rent if you are in a position to buy. The tradeoff between falling house prices and rising interest rates is not worth it. The interest on a 30 year loan is worth far more than saving $25,000 on the cost of a home.

If you rent when you are in a position to buy a home you are pissing money all over the street and building no equity. You almost never lose money on a home investment over time.

**largepkg** · 09-13-2006, 02:11 PM

Originally Posted by boilermaker

Don't ever rent if you are in a position to buy. The tradeoff between falling house prices and rising interest rates is not worth it. The interest on a 30 year loan is worth far more than saving $25,000 on the cost of a home.

If you rent when you are in a position to buy a home you are pissing money all over the street and building no equity. You almost never lose money on a home investment over time.

There are way to many factors that go into "Buy vs Rent" then what you're stating. Don't paint with such a broad stroke!

The statement "if you're in a position to buy" should never be the deciding factor. Also, you're not pissing money all over the street if you rent. Would you be if you were in a comparable market of say 4-5 years ago, of course but not today.

**boilermaker** · 09-13-2006, 04:10 PM

Originally Posted by largepkg

There are way to many factors that go into "Buy vs Rent" then what you're stating. Don't paint with such a broad stroke!

The statement "if you're in a position to buy" should never be the deciding factor. Also, you're not pissing money all over the street if you rent. Would you be if you were in a comparable market of say 4-5 years ago, of course but not today.

Based upon what? Unless you make a really poor decision on the house, you should make money. We aren't talking about "flip this house". DoubleBase makes decent money and if you can tell me how he is saving money by renting, then I'll listen.

**MyK** · 09-13-2006, 05:08 PM

Originally Posted by maniclion

Don't be so smug in your securities blanket, I happened to get a chance to watch a Documentary last night about F. Scott Fitzgerald and The Great Gatsby which was a prophetic look at what was to come in 1929. Towards the end they were looking at the comparisons of life then and now and the new rich springing up all over the place now just like in Gatsby. They had feelings that we could be headed towards a crash that makes the Titanic look like a toy in a bath tub, Hunter Thompson said something like that, then he said "Where's the Iceberg", scary shit.

Comes on again Sept. 24 on Ovation

um, ok!

all I have to say to you is look up "disintermediation" and the establishment of the Federal Deposit Insurance Corporation (FDIC) in 1933.

Im not going to lecture you!

**Witmaster** · 09-13-2006, 05:19 PM

Originally Posted by MyK

Please you have no idea what your talking about using broad general metaphors as if they are some kind of intelligent argument. I would never debate a steroid discussion with you, so leave the finance and economic discussions to me!

Due to the technological advancement of securitization of all of our money markets, we have substantioally less political and/or market uncertainty. All of our securitize also have substacially less moral hazard and adverse selection due to supply and demand and public legislation.

these factors, or lack of, along with the protectionalism were the major factors that cause the disintermediation and bank panics of 1929 and led to a downward spiral and the crash in october. I agree I should never say never, but its like comparing a 1920's model A with a 2006 top of the line lexus!

Who are you and what have you done with Myk?

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