I first started to write a balance of payments focused blog back in 2004.
Initially, I spent most of my time documenting the rapid rise in China’s surplus, the relentless rise in the surplus of the oil exporters, and the massive run up in global foreign exchange reserves—and showing that for all the talk (at the time) about exchange rate flexibility, most emerging markets were heavily intervening in the foreign exchange market. More on:
Economics Emerging Economies China I also sought, with only limited success, to figure out the vulnerabilities associated with that particular global system. The “balance of financial terror” ultimately held. China never stopped financing the United States. Yet by the summer of 2007, obvious stress had emerged inside the financial systems of advanced economies.
Follow the Money Brad Setser tracks cross-border flows, with a bit of macroeconomics thrown in. 1-3 times weekly. Email Address View all newsletters > With hindsight, a world where demand for safe reserve assets far exceeded net Treasury issuance created enormous problems for financial intermediation. “Synthetic” safe issues proved to be a poor substitute for good old full faith and credit claims on the U.S. Treasury. It wasn’t the conventional wisdom at the time, but a world of large “uphill” capital flows likely could have lasted a bit longer if the United States had run larger fiscal deficits.That would have made the U.S. economy, and the global economy, less dependent on European banks to intermediate between the world’s sources of surplus savings and the borrowing need of U.S. households. Resuming this blog provides a natural point for a bit of reflection.