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Of trade deficits and capital surpluses


12/28/2020 2:55:47 PM GMT
In the middle of 2020, foreign investors owned a little more than $13 trillion more of US assets (stocks, bonds, and brick-and-mortar) than Americans owned of foreign assets.  It is the other side of chronic current account deficits, the broad measure of trade.  By this measure, the US is the world s largest debtor.  It spurs much teeth-gnashing angst for reformists of all stripes.  
Not so fast, says Michael Pettis and Matthew Klein in their book, Trade Wars are Class Wars.   They tell us that the problem is not that the US lives beyond its means, but other countries, especially Germany and China, suppress domestic-demand and buy US financial assets instead of US goods.  It produces an overvalued dollar that aggravates the trade imbalance and spurs financial crisis.  ....

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