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Excessive surpluses carry a different bag of challenges. Namely the contractionary impact they have on the rest of the world, and the fact that during a financial meltdown of 1929 proportions, money stops flowing easily across borders to finance trade deficits.

So overseas countries with current account deficits w.r.t. the US had to scale back on those deficits by increasing exports and/or foregoing imports. This is, of course, a further contractionary effect for the US.

Moreover, the depressing effect of US-made imports on their economies will further provoke them to improve their trade balance during a downturn in domestic employment rates. The contractionary effect of imports will not be an issue in the absence of mass unemployment, so there is likely to be some slack available. This has, as noted, further contractionary effect on the US.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 28th, 2009 at 02:50:43 PM EST
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