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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (44657)	9/21/2003 6:46:54 PM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

Posted by richard at September 19, 2003 09:46 AM I don't buy into the Roach theory of Global imbalance. If I were to do a survey of my neighbors and find out most are borrowing and not saving or investing, should I declare a neighborhood imbalance? Of course not. The only rule of balance which applies here is that by necessity the borrowing my neighborhood does must be matched by investors living outside of it. Roach likes to point out that the global situation today is lack of demand. All major economies have an ageing population saving for their retirements, and a lopsided distribution of wealth does not help demand either. This is the real imbalance... everyone wishes to save for the future and that can't happen. So a global economy has its way of sorting this situation out. It lowers interest rates until someone changes their mind about not spending, and in this case it occurred statistically more in the US. And why not? The US is least affected by a demographic problem, and maybe as a culture we are not quite as inclined to worry so much about the future. So, we borrow at low rates to build houses and cars. Businesses make investments at low rates which keeps productivity gains strong. This is not even close to a problem. It is the invisible hand in action. I'm not willing to call the collective decision of Americans to take advantage of the situation now and pay it back later an impending disaster. Economies are fortunately behaving according to the laws of economics. Short rates are very low because the country/globe has too much savings at higher rates, longer rates are low for the same reason, and the stock market and housing prices are high for also the same reason. Within 5 or 10 or 15 years the populations of Europe and Japan, and probably the government of China will have decided that it's spending time and the opportunity for the US to go on a spending and investing spree will have ended. But we get to keep our houses (which last quite a while) and cars (for as long as cars last) and we get to keep our productivity gains too (until the equipment wears out). So I'm not worried. I'm not worried unless the Fed should run out of room to cut, and even then I'm not so worried. Posted by snsterling at September 19, 2003 09:49 AM