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Wednesday, November 09, 2005


brad setser

a couple of comments before i try to read the paper -- with the big caveat that Joe Gagnon taught me an awful lot of what i know about the current account ...

1) I share the new economists suspicion that "Asia's crisis" doesn't explain the recent surge in china's surplus well.
2) I would have thought that the authors model -- if done in say 01, would have predicted a fall in non-China Asian surpluses then ...
3) I want to see the data on fiscal ... yes, the US fiscal deficit is not as big as some others, but the swing from 00 to 03 was pretty big, and what matters is gov dissavings v. total private savings, and with low private savings, fiscal swings have a bigger impact. but that still leaves the why not a crowding out effect -- i.e. higher interest rates -- from the fiscal deficit. Bernanke's puzzle.
4) interesting, the oil shock has more or less eliminated non-China emerging Asia's current account surplus. look at thailand -- a crisis country. korea is also moving back toward balance.
5) the wags might say that from 02-04 the US did not offer so much a market friendly environment as a central bank friendly environment, given the scale of central bank dollar accumulation in those years. and in 05, the US has offered a petrodollar friendly environment -- not sure the saudi investment accounts (however channeled) are the classic market actor.

am interested in how Gagnon and Kamin explain the surge in reserve accumulation by emerging economies from 01 on -- well after the Asian/ Russian crisis.

brad setser

oops -- joseph gruber is not joseph gagnon, and gruber wrote this paper ...

r4 revolution

It was ironic then and has become still more ironic in retrospect, to read the plethora of articles in Western media a few years ago that decried the old-fashioned methods of the Chinese banks, for which was prescribed an injection of what were described as «modern banking practices» through partnering with Western banking institutions, mainly, of course, from the USA. In this way, it was said, the dead hand of state regulation could be removed, and a glorious and profitable paradise attained (for some - as Professor Krugman pointed out, the «sophistication» that marked these practices consisted mainly in devising «sophisticated ways to enrich themselves by hiding risk and fooling investors»). How fortunate for the Chinese that state regulation and conservative banking traditions kept most banks from wandering too far along this primrose path !...

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