neděle 5. června 2011
Where would 1998 Paul Krugman stand on current debate?
Just finished reading Krugman's take on Japan's slump. It is very interesting article in respect to our curent situation, but one thing striked me as really odd, given what Paul Krugman articulates now. When he discusses the possible fiscal answer to the problems of Japan, he stresses that "how much stimulus is needed, for how long - and whether the consequences of the stimulus for governemnt debt are acceptable" has to be considered. Now, this is perfectly acceptable position. Only that Krugman nowadays advocates continuous fiscal stimulus and ridicules those, who talk about the danger to US fiscal position and reaction of bond markets. The first attitude, after considering pros and cons, can still pass his original analysis. It is the second attitude, which is questionable. Not that USA would face imminent danger of debt markets pullout, Krugman is probably right that it does not. But he should know best of all, that the sudden reversions in market perceptions of sovereing debts can be, indeed, sudden. One could argue, that Japan shows, that the levels of governmen debt can go to much higher levels without any concerns (indeed, japanese government debt realative to GDP was roughly similar to current position of USA) . But Japan is definately in different position. Most important, it runs continuously current account surpluses, so the governemnt debt is financed by home savings. These savings are in a way trapped in the country and thus have no other choice than to be invested in japanese bonds. America is in exactly oposite position, since it depends on China's central bank (and others) for its financing. This means, that it is effectively vulnarable to changes of position of one big player. Arguing, that it is unlikely to happen, especially to America due to its central position in financial architecture, is variant of argument, that financial crises happen only in emerging countries. Guess what: they don't.