House of Paine

a wally world response to roubini

here's two guys from 
               corporation street 

giving beaany the fuck u salute 



===================================


"LEVEY AND BROWN REPLY

" Nouriel Roubini portray us 
as modern-day Panglosses 
for expecting an orderly adjustment
 of global economic imbalances 
and sustained U.S. hegemony"

" But to us, 
they are would-be Cassandras 
who gravely warn of U.S. decline
 just like the armies 
of "imperial overstretch" 
aficionados
 before them" 


Because  Roubini misconstrue 
the causes of current imbalances
 they lay the principal blame 
for these imbalances 
on U.S. macroeconomic policy
 while ignoring
 European and Japanese stagnation
 and Asia's problematic economic policies
 The United States
 in their view
 stands alone at the precipice
 facing a stark choice:
 restore fiscal sanity 
to eliminate external imbalances 
or confront the prospect
 of nervous central banks
 severing the country's 
tenuous financial lifeline 
and setting it on the path to decay"

" Fortunately, their rigid "twin deficit" 
view is not supported by the facts"

" Although there are good reasons
 to reduce medium-term budget deficits
 there is only a tenuous link
 between the budget deficit
 and the current account deficit"

" The current account deficit
 contrary to their depiction
 is mostly the result 
of a post-bubble global savings glut"

" especially relative 
to good investment opportunities
 The excess saving 
of the Europeans 
and the Japanese 
has depressed global interest rates
 and required a large external deficit
 somewhere in the global economy"

" Thanks to its unequaled openness
 to imports and capital
 the United States has provided that deficit"

" Deep unilateral budget cuts
 then, would do little to correct 
the current account deficit
 and in the absence of perpetually postponed
 growth-enhancing reforms in Europe and Japan
are a recipe for global recession
 Correcting global imbalances 
will instead require a cooperative approach
 faster growth of domestic demand 
in Europe and Asia
 higher U.S. saving
 and a further gradual depreciation
 of the dollar"

" Although the current account deficit 
is not likely to stabilize anytime soon
 all the major global economic players
 ultimately have good reason 
to favor an orderly adjustment process 
based on such complementary
 mutually reinforcing policies" 



"In the United States
 tighter U.S. monetary policy 
and growing bipartisan attention 
to the fiscal trajectory 
will eventually raise
 the savings rate"


" in Asia, 
moderate reserve-currency diversification
 combined with a slowed pace
 of export growth
 can be achieved 
with gradual macroeconomic adjustment"

"According to  Roubini
 the current situation 
is especially dangerous 
because foreign central banks 
are financing three-quarters
 of the $665 billion current account deficit"

" This accounting is incomplete
 because it ignores
 most of the funds 
flowing into and out of the United States"

" especially private foreign investment
 which totaled over $800 billion in 2004
 The $500 billion provided by central banks
 therefore
 represents only one-third
 not three-fourths
 of total capital inflows"

" Ongoing sizable additions
 to foreign private holdings 
reflect the unmatched
 safety and liquidity
 of U.S. financial markets 
and the dollar's as-yet-unchallenged
 key-currency role"

" Portraying the United States
 as desperately scrounging
 for surplus savings 
distorts the voluntary nature 
of these U.S.-bound capital flows"

"By arguing that foreign investors
 currently fund only the budget deficit
 rather than private investment
 as they did in the late 1990s
 Roubini mislead again"

" True, central banks fund government borrowing
 but only because they must hold risk-free
 highly liquid reserve assets
 Most of the remaining $1 trillion
 of foreign money 
that flowed into the United States
 in 2004 
funded private economic activity
 as large an amount 
as in any previous year"


" Meanwhile, U.S. private investors 
and corporations are vigorously amassing 
foreign assets
 They added $821 billion in 2004
 almost double the annual average 
during the late 1990s"

"Roubini further warnS that Asian central banks'
 fears of capital losses 
on dollar-denominated reserves
 could lead to a dollar selloff 
and a disorderly downward spiral 
for the greenback
 forcing a painful spike in U.S. interest rates"

 "Such arguments conflate 
the incentives governing private behavior
 with its fixation on exchange-rate-adjusted real returns
   with
 the very different constraints 
facing central banks"

" The latter use reserves 
to manage their exchange rates 
and protect against capital-flow reversals"

" They care far less about 
the value of their reserves
 in terms of their own domestic currencies
 as reserves do not represent claims 
against domestically produced goods and services
 Therefore
 capital losses measured as a share of GDP
 as Roubini estimates with China's reserves 
hold little economic meaning"

" The relatively small cost 
of currency appreciation 
pales in comparison 
to the enormous benefits 
Asia derives
 from maintaining competitiveness in U.S. markets"

"Finally,
 U.S. debt has eroded neither
 the appeal of the U.S. economic model 
nor its soft power"

" The "Lisbon agenda" of market reform in Europe
 the ongoing liberalization
 of Asian capital markets
 and structural change in Japan 
all suggest that growth-enhancing elements
 of the U.S. model 
represent vital complements
 to existing national varieties of capitalism"

" China also faces serious difficulties 
 unreformed state enterprises
, bankrupt banks,
 and the need for massive job creation
 to name only a few 
 which Roubini's view of global economic imbalances 
vastly underestimates"

" The Chinese government
 remains heavily dependent
 on U.S. market access and technology
 to manage its potentially
 unstable transformation"

"t is a mistake to equate borrowing
 with a loss of power 
just because the United States
 was once a net creditor and also powerful"

" If power presupposes creditor status
 is the ticket to sustained hegemony 
the investment stagnation
 structural unemployment
 and aging populations characteristic 
of Europe and Japan? "

"Its net debtor status notwithstanding
 the United States enjoys overwhelming dynamism 
and influence rooted 
in rapid productivity growth
 based on innovation at the technology frontier
 Meanwhile, it serves as the "buyer of last resort,"
 the primary source of technology transfer,
 and the global monetary anchor
 the classic hegemon providing critical "public goods."

" Roubini sees the United States
 as a floundering Leviathan; 
we see it as a firmly grounded giant"

" Over the last decade
 business investment in equipment and software
has increased 66 percent in real terms
 compared to a 44 percent increase in personal consumption"

" The result is an economy 
leagues ahead in the production and utilization
 of information technology"

" Meanwhile, net household wealth 
is at an all-time high
 government debt remains moderate
 by international standards
 and corporations 
 having paid down their debts
 are unusually liquid"

" The tired caricature
 of an overconsuming and underinvesting wastrel
 is difficult to square 
with a country that has combined strong growth
 interrupted only by two brief and mild recessions
 with monetary stability over the last 20 years'"