http://reservedplace.blogspot.com/2008/04/us-economic-policy-shot-in-foot-2.html

Is it the European or Chinese? These are the nations that created the artificial circumstances in the first place. THe reason for this is that their economies are export driven. TO be competitive they required overvalued US dollars. With the depreciation of the dollar these economies will no longer be competitive. In fact, to survive, European corporations are going to have to move jobs to the United States.

IN the United States, the problems will be higher gas and commodity prices. But, the fact is, the conspicuous consumption within the United States can easily handle reductions in energy and commodity utlization. That is a small accomodation to make given the fact that as a debtor nation we now can repay our bills with lower valued currency.

My prescription for the US is "soak the rich" in order to pay for public goods like health and education. One interesting thing is that the subprime mortgage mess has been a very unintentional form of wealth distribution from Wall Street to people with poor credit. Something more intentional would be useful.

As far as "underground infrastructure", NYC is very unlike any other American city for its use of public transportation, and there are several large infrastructure projects going on right now, most of them being expansions of the subway/railway system. The reason that got brought up is that one big project is the tunnel between Grand Central and the Long Island Railroad is going to drastically shorten the commute to JFK, which is why I find Gapper’s remarks utterly non-sensical. Also, I don’t know why he was going to JFK since Newark is a much nicer airport, and I certainly have no idea why he was taking the BQE to JFK in a taxi. (Since the most direct way to JFK is through the Long Island Expressway and then the Van Wyck. My guess is that the taxi driver is trying to pad the fare since anyone that takes a yellow taxi to JFK is a sucker.) As for cell phones, I don’t know why he had problems since I’m typing this through my 3G cell internet connection on my way to Newark Airport.

Thanks for your reply, Brad. I was assuming that the private sector deficit (spent on consumption and excessive housing for example) is the problem, and higher long term rates would mean less of that, such that the overall US deficit was shifted to the government, who would spend it on something more productive. A deficit per se is not a problem, provided you spend it on something that yields more than the cost of funding. You have to borrow to access the exorbitant privilege. Both infrastructure spending and reserve accumulation imply a government deficit. I am afraid that the "American way" is precisely what no longer works, and has to change.

If you look at the US current account deficit, pretty much all of it can attributed to two sources. The Bush tax cuts and the Iraq war. Neither of these were good ideas, but these two bad decisions are not going to doom the US, and the deficits aren’t due to deeper problems in the US economy. If you reverse the Bush tax cuts and stabilize the situation in Iraq, that’s all you really have to do to make the numbers work out.

Rebel — I think there is something to the Dutch disease anology. But the solution to Dutch disease is usually more public savings (to avoid real appreciation), not more public investment. More investment financed by government borrowing would have pushed up the risk free rate, but it also likely would have produced a bigger deficit. Basically the answer would have been a policy of restraint — we will lock up all the funds you send our way by adding to our reservse and sending them back out rather than spending the inflow. and that isn’t the american way.

incidentally, we still are supporting our standard of living by debt. look at the growth in the custodial accounts at the NY fed. this week saw a small fall in total central bank holdings, but after the huge recent rise that isn’t all that much of a surprise. weekly data bounces around.