U.S. to Rest Of the World: Charge It!
By David Wessel, 2/12/04, Wall Street Journal
The U.S. is behaving like a family with a well-worn, low-interest-rate MasterCard.
For years, the U.S. has been consuming more than it produces. (That's what it means to import more from the rest of the world than one exports.) And it has been investing more than it saves. (That's why it depends on foreigners sending another $1.5 billion of their savings every day.)
Despite the strains of a jobless recovery, this is a good life. The U.S. buys lots from the rest of the world, and the rest of the world lends the U.S. the money to make the purchases -- more every year -- at today's very low interest rates.
For a considerable period now, economists -- think of them as national credit counselors -- have been warning that this can't go on forever. Foreigners won't keep devoting larger shares of their savings to U.S. stocks, bonds and companies, just as there is a limit to how much MasterCard allows any one family to borrow.
Sure, this could continue for years. But the dollar's recent slide is a sign that countries are skittish about putting much more money into the U.S. Too often, though, the dollar is seen as the issue, rather than a symptom.
Yes, the weak dollar is hard on European exporters, and makes life easier for U.S. manufacturers. Yes, it's bad for Americans eyeing trips to Paris, and good for Germans who long for the Florida sun. And, yes, financial markets fixate on whether conclaves of big-country finance ministers do or don't want to nudge the dollar.
But the issue is how U.S., Europe and Asia can find a way -- short of a wrenching crisis -- to wean the U.S. economy from a growing addiction to foreigners' savings and the rest of the world from an unhealthy dependence on American consumers.
The world economy is out of whack. To set it right, the U.S. needs to buy more homemade Fords and fewer imported Toyotas, so that it relies less on credit from Japan and others. And Europe and Asia need to buy more U.S.-made wares and rely less on exports to stoke their economies.
Someday, that's going to happen. The question is how painful it will be. Right now, the global economy is trying to adjust by pushing down the dollar. Recognizing that, George W. Bush's administration is acquiescing. Economic textbooks say the weaker dollar should make imports more expensive in the U.S. (so Americans will buy fewer of them and more homemade goods) and make U.S. exports cheaper abroad (so other nations will buy more from the U.S.).
Things aren't working quite the way the textbooks predict. First, too much of the dollar's decline is being absorbed by the euro and not enough by the yen (because the Japanese interfere in currency markets) or the yuan (because the Chinese won't let it move) or other Asian currencies (because their governments watch the yen and the yuan). Second, prices of imports in the U.S. and prices of U.S. exports elsewhere aren't responding quickly to changing exchange rates, which has markets betting the dollar will have to keep sliding.
But, remember, the dollar isn't the issue; it's a symptom. Government economic policies could help if they could get European and Japanese consumers to buy more and get Americans-both citizens and government-to save more so the U.S. doesn't need so much foreign credit.
Unfortunately, as one German official bluntly puts it, "It is as hard to get Germans to spend as it is to get Americans to save."
There is a painful way to right the world economy: a financial-market crisis. The dollar takes a sharp plunge. Stock and bond markets follow. With deficit angst running high and finally pushing up interest rates, the president -- either President Bush or a successor -- rallies Congress to an emergency deficit-reduction package.
That's likely to mean the U.S. economy falters. But it will import less (because the U.S. buys less from abroad in a recession) and save more (that's what reducing the deficit does).
What might a pain-prevention approach look like? A lower dollar, but not just against the euro. Lower European Central Bank interest rates. Aggressive moves in Europe and Japan to further deregulate their economies so their peoples can benefit more from changing technologies. Credible moves in the U.S. to reduce huge, future deficits threatened by the retirement of the populous generation born after World War II, even if that means raising taxes. And smarter efforts to hone America's competitive edge, particularly by better educating its children and training its workers.
The benefits are priceless: A healthier global economy that delivers more goods and services to all economies. Until then, there's always MasterCard.
online.wsj.com |
