Monday, January 9, 2012

Trade Imbalances are Key

Michael Pettis logically explains the need for Germany and China to reverse their trade surpluses. Despite the seemingly obvious consequences of not pursuing this path, Pettis notes that the historic precedent is for countries not to undertake the tough road (short-term pain for long-term gain) but rather fight to maintain their trade surpluses. This discussion is one of the best I’ve seen yet about the difficulties facing the EU. It is largely based on the historical precedents mentioned that my expectations for any resolution to the European crisis maintaining the union are diminished. Pettis also mentions the possibility of China devaluing their currency, exactly the opposite of what most politicians are calling for. If this occurs, I fear the US might impose heightened tariffs on trade that sparks a bout of global protectionism.

Read it at
If no trade reversal now, then when?
By Michael Pettis

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