UK must address giant trade deficit, IMF warns
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Will Hutton has, inadvertently, provided a case for fiscal austerity. He writes of our record external deficit and deficit on net investment income:. If these trends continue for another 10 uk trade account deficit 15 years the interaction with our growing trading deficit — we import a great deal more than we export — will eventually make the scale of our international debts uk trade account deficit income flows abroad insupportable.
There will have to be a massive national belt-tightening along with the imposition of controls of capital to uk trade account deficit a runaway sell-off of what will be valueless pounds. The curtain will come down on an era of amazing economic fecklessness. Before seeing why this claim might justify tighter fiscal policy, let's just strengthen Will's argument in three ways:. Whilst this is roughly the same as Australia's, the US's or France's, the only major countries with significantly bigger liabilities are either those that ran into a big financial crisis because of their overseas debts Greece, Spain or poor countries for whom high liabilities represent FDI from overseas to take advantage uk trade account deficit their decent long-term growth prospects.
The UK is not in the latter category. This can be a sign that bank lending is growing faster than deposits - which might be a warning of an impending financial crisis. Herein, then, lies the case for austerity. The bigger the fiscal multiplier, the more it does so - because there's a bigger drop in aggregate demand and hence imports.
In this sense, fiscal austerity imposes hardship now in order to prevent a "massive national belt-tightening" in future. I suspect Will does not want to reach this conclusion. And there's a good reason why he shouldn't. The Uk trade account deficit current account deficit is a symptom of the global savings glut and secular stagnation.
By definition, the UK's deficit means that the rest of the world's domestic savings exceeds their investment. Foreigners are buying London houses and British businesses because they can't find sufficient productive investments at home. One thing tells us this is a better way of regarding our deficit than the "amazing fecklessness" Will describes. It's that foreigners are happy to lend to us. Neither would have happened if the UK were in a desperate fire-sale of assets to fund profligacy.
Now, I don't say this to mean that the deficit is not a problem. Given the lack of global capital mobility, it is. As Sushil Uk trade account deficit once said pdf:. It is possible that the current account only matters some of the time. Casual observation uk trade account deficit that countries with a current account deficit can have a currency that stays strong for a surprisingly long period, until, uk trade account deficit, there is an abrupt adjustment.
This might be an example of what Sornette and Cauwels call " creep ": Instead, the question is: I suspect perhaps not. Insofar as the deficit is partly the counterpart of high savings and weak demand in the euro area, we should wait until those problems are diminishing before trying to reduce it ourselves.
March 08, Permalink. Am fairly new to all this, but do sales of UK houses and businesses to foreigners show up uk trade account deficit the current account?
Are these not capital account movements? As follows in bookkeeping terms:. TickyW March 08, at The problem with 'export led' growth is very simple.
It is an accounting equation. Bob March 08, at I meant to say investment exceeds savings. Think of national accounts identities: Bob - you're right at uk trade account deficit global level. I'm not sure export-led growth is feasible at uk trade account deficit national level either. This is because supply chains are globalized, so that exports have a high import content. TickyW March 09, at Britain is no latin american country. Having said that, the experience in that part of the world tells you that debt busts might take a while but they happen.
When they do, it is not a pretty sight. Gerardo Licandro March 09, at They waited and are still waiting for that to change. Time ran out and they to adjust on their own, with all the attending cost! Foreign buying of GBP is storing up a huge problem for the future.
I have an alternative solution, though, that does not involve crushing domestic demand: Ari Andricopoulos March 11, at This can be a sign that bank lending is growing faster than deposits". Which means the pounds are accumulating in foreign accounts, right? Otherwise the uk trade account deficit of domestic lending would be matched by growth in domestic deposits. And I suppose that foreign gov'ts are holding on to those pounds?
Because of a shortage of money circulating in the domestic economy? Because of stockpiling of pounds uk trade account deficit foreign gov'ts? Min March 12, at Deficits are not a national debt. The UK has had a deficit for years to no ill effect. The Tories are making the same mistake they did uk trade account deficit the workhouse that killed 5 million at extra cost, when the Poor Law of old had worked fine without all the cost of staff and workhouse building to stave off starvation.
The cost of UK's welfare admin both state and private contract has gone up by the tens of billions each year, whilst the money to the starving has reduced by the billions.
Universal Credit, replacing all other benefits, will inflict permanent sanctions off any food money by the Hardship Payments hard enough to get so not standard becoming recoverable loans from any future benefit or earned income.
This will afflict UK's working part time poor where most of the rise in employment has happened fromwho will be also permanently sanctioned under UC for not being able to do the unattainable of moving from part time to full time hours. The working poor include the over 60s, who will also be denied Pension Credit benefit before state pension payout, payable even if remain in work.
With an even more unelected Tory caretaker government far below anything like a majority, even if an MP loses his seat. Pension60 March 12, at Stumbling and Mumbling An extremist, not a uk trade account deficit. He writes of our record external deficit and deficit on net investment income: Before seeing why this claim might justify tighter fiscal policy, let's just strengthen Will's argument in three ways: As Sushil Wadhwani once said pdf: As follows in bookkeeping terms: I suspect it's a typo and you meant to say, " A uk trade account deficit of what I hope are not too stupid questions.
This can be a sign that bank lending is growing faster than deposits" Which means the pounds are accumulating in foreign accounts, right? Austerity in a recession makes the nation worse off not better.
And anyway UK austerity has not happened. Nowhere in history has an elite survived leaving its mass of poor to starve. The UK is predicted to have the most severe hung parliament in its history. My Day Job Biased against trackers Do recessions matter? Under-estimating growth Bubbles What risk-return trade-off? The power of imprecision Coping with the replicability crisis What short-termism? Why economists can't forecast.
The persistence of fiscal stupidity. About me My Normblog profile. Blog powered by Typepad.