Posted on Monday, November 16th, 2009
By the Center for Geoeconomic Studies
The United States is rapidly approaching its legal debt limit of just over $12 trillion. As of September 2009, U.S. debt stood at $11.9 trillion. As these charts indicate, Congress has raised the limit four times in the past three years, as the need for financing has risen. Some hope that the limit will encourage fiscal responsibility. Others fear that this exercise raises the risk of a technical default, as nearly occurred in 1995, which would disrupt markets and potentially impose severe costs on a struggling economy.
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Posted in Fiscal Policy, U.S. | 0 Comments »
Posted on Monday, November 9th, 2009
By the Center for Geoeconomic Studies
Over the last decade, Asia has developed into a major manufacturing base for the developed world. This relationship has provided mutual benefits: the West has received cheap goods while the East has developed its production capacity more quickly. China, to a significant extent, has been the assembler nation, importing raw materials and intermediate products from the rest of Asia and exporting finished products to the West. This relationship is illustrated in the chart above, which plots China’s imports from Asia and its exports to the U.S. and Europe since January 2000. Recently, however, this relationship has weakened slightly — China is providing more demand for Asian exports than the West is providing for Chinese exports. An important question is whether the strong Asian recovery can continue without a robust recovery in Western demand for Chinese goods.
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Posted in China, Trade | 0 Comments »
Posted on Monday, November 2nd, 2009
By the Center for Geoeconomic Studies
The greatest challenge of European monetary union is devising a single monetary policy for a large grouping of countries facing divergent economic conditions. As these charts show, this challenge has been thrust to the fore since 2008, as eurozone employment conditions have diverged dramatically across member countries. Whereas the effectiveness of independent monetary policy as a tool for managing employment in smaller open economies is much debated among economists, the political challenge facing the European Central Bank in having to justify its policy decisions under current conditions is clear.
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Posted in 2008/9 Downturn, Central Banks, Europe | 0 Comments »
Posted on Monday, October 26th, 2009
By the Center for Geoeconomic Studies
Near zero T-bill yields throughout 2009 is keeping U.S. debt service low even though the amount of outstanding debt continues to rise. A forecast increase in U.S. interest rates, along with growth in the amount of debt, will lift interest expenses sharply over the next ten years. In fact, as this chart shows, interest payments are projected to surpass defense spending by 2017. According to the Bureau of Economic Analysis, which collects data back to 1929, interest payments have never surpassed defense spending.
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Posted in Fiscal Policy, U.S. | 3 Comments »
Posted on Monday, October 19th, 2009
By the Center for Geoeconomic Studies
China has accumulated a massive stock of U.S. dollar reserves in recent years. Statements of concern from China regarding the risk that U.S. economic policy might undermine the future purchasing power of these assets has fuelled the market’s concern that China may shift away from dollar purchases. Yet the chart shows that over the 12 months ending in July 2009 China accumulated more dollar-denominated assets, mainly U.S. Treasuries, than foreign assets in total. Despite its rhetoric, China has thus far taken no actions to wean itself off of the dollar.
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Posted in Capital Flows, China, Currencies | 0 Comments »
