Sunday, October 16, 2016

US Trade Deficits and Recession

One burden of having the reserve currency is that the nation who issues it has to be the consumer to the world. Often the reserve currency is referred to as a privilege, however, Michael Pettis in Foreign Affairs explained back in 2011 that it could be a burden as well.

Note how shrinking trade deficits in the US have coincided with US recessions. This means the US has to buy more from the world than it sells and that cutting off global trade will not bring back workers.

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