Brad Setser

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Does a bigger boom imply a bigger bust?

by Brad Setser
November 10, 2008

For the US housing sector – and the financial firms that financed the boom – a bigger boom meant a bigger bust. Home prices rose higher than before — and now are falling fast.

Shipping too. The Baltic dry index rose high on the back of Chinese demand. And recently it has fallen even faster than it rose.

The Baltic index tracks the cost of shipping bulk goods. But it is indicative of the broad contraction in global trade that is almost certainly now underway. No wonder that China is now pondering the risk that its export boom could turn into an export bust. Its export boom was comparable in scale to the United States housing boom. Perhaps bigger – as it also drew on demand fueled by Europe’s housing boom (and, until recently, the RMB’s large depreciation v the euro) as well as US demand.

Whatever the cause, China’s exports have grown steadily larger over the past few years. Indeed, as the following chart shows, it is almost impossible for words to do justice to the scale of China’s export boom.

Yes, the pace of nominal export growth has slowed recently. But that is largely the result of a bigger base – not any major slowdown. Real export growth has slowed more than nominal exports. But real export growth – despite the loud complaints of the textile sector – has remained positive so far this year. The basic story of this decade – at least until now — is of an enormous boom. There isn’t even much volatility.

Particularly relative to say the 1990s. Back then the pace of growth was generally slower and – as importantly — periods of rapid export growth were followed by periods of no growth. This shows up clearly in a chart that looks at the 12m change in exports (exports in the most recent 12ms – exports in the preceding 12ms).

In the 1990s, Chinese export growth looked rather cyclical. In this decade though exports basically just kept growing and growing.

That though is almost certainly changing. My measure of export growth picks up long-term trends, but not short-term changes. If CLSA’s purchasing managers’ survey is right, there is no little doubt that China’s manufacturing sector is heading toward a recession. Real export growth almost certainly will slow sharply in the fourth quarter.

And — as many have noted — there is a significant risk that domestic investment may slow along with exports. Some investment was directed at building up the export sector; even more likely went into China’s domestic property market. The scale of any slump in investment really matters. China’s investment boom was a bigger source of China’s growth this decade than China’s export boom.

China’s policy response is directionally right. A large domestically oriented stimulus is exactly what is needed. $585 billion is over 10% of China’s GDP – so it is large. At least it if it is really new money.

Unfortunately, as the FT’s Geoff Dyer notes, that isn’t clear yet. If the stimulus is mostly just funds that China would have spent in any case, its actual impact will be modest. But if it is real new money, it could be large enough to make a difference.

The big question though is whether it can be put into effect quickly enough to offset the likely downturn.

It isn’t totally inconceivable that the y/y increase in China’s exports could go from over $250 billion to something close to zero …

China’s financial sector doesn’t rely on financing from the international banking system. That leaves it in a better position than other emerging economies. On the other hand, China has relied more than most on external demand to support its growth – which is a problem in a global context when external demand is disappearing. Let’s hope China can reorient its economy quickly …

UPDATE: A superb leader on China from the FT.


  • Posted by Michael Pettis

    Brad, I think it is definitely a big step in the right direction, but we are also far from out of the woods yet. It matters if the package really consists of net new fiscal spending, if it isn’t accompanied by sharp contractions in municipal spending, private investment and private consumption, and if the US adjustment in savings is on the low side of historical reversion. After all, if US savings go up by 5% of GDP, that is the equivalent of 17% of Chinese GDP, and more than 50% of current Chinese consumption. These are big numbers.

    The way the money is financed and spent will also determine if we are simply converting a current overinvestment crisis into a future banking crisis. As you know, I worry a lot about weakness in the Chinese banking system.

  • Posted by df

    what have I been telling all along ?
    China is bound to be the hardest hit.
    If you look closely, China has been typically sovietic : overinvestment in infrastructures, exports and nothing for the consumer.
    A mirror of the US behaviour.

    We all know that you can ‘t move in one year decades of unsustainable policies.

    It is true for the USA, it ll take an awfull long time to rebuild a national industrial base, an export base. It ll take long to restore household saving base.

    It is true for China. It ll take long to establish efficient social security and schooling scheme and reduce the household saving rate.

    It also will take long for the world to move out of the plane and auto industries.
    Let us be clear : those industries are too oil and energy intensive.
    Far more efficient technologies exist, train, boats, videoconference. And that include local fleet of electric or hydrogen cars that you can rent at unexpensive price.

    So next question is : when does massive social disorder in China appear ?
    What are the chances that China tries to cool them by engaging in a war, for instance with taiwan.
    If so, what will be the US position ?

    Consider Taiwan as the Cuba of the China.

  • Posted by London Banker

    The collapse in global trade and shipping is largely driven by the credit crunch. With banks no longer trusting one another, and liquidity drying up, letters of credit are both harder to obtain and more costly. This is disrupting trade in physical goods. If uncorrected, it will swiftly lead to hunger, joblessness and social unrest globally as food and resource needs go unmet.

    The WTO has called a special meeting with World Bank, IMF, trade credit insurers and banks for November 12 to address the issue.

    You could not find a better, clearer, textbook example of how a financial liquidity crisis communicates to the real economy and to political instability than the current escalating crisis in shipping finance.

  • Posted by SJ


    You need to re-do the first graph with a log scale on the vertical axis. It doesn’t have the proper explanatory value otherwise.

    Cheers, and keep up the good work.

  • Posted by Rien Huizer

    Good questions,

    What China’s policimakers will do is

    (a) try not to do things that re too difficult to execute in this partially anarchic country
    (b) give priority to keeping large firms alive (the Pearl delta firms problems hurt only a fraction of China’s people with clout)
    (c) use the occasion to do some purging
    (d) stop silly investment (like buying stakes in US financial firms without any strategic value for China)
    (d) stop appreciating the RMB
    (e) think very hard about rural reform, especially if urban job creation becomes negative (horror, but not impossible if the iron ore spot market (an early indicator of construction activity) stays this low) . That looks unlikely, but with some 50-60 million rurals unoficially working in urban construction, a 40% redundancy would already cancel out steady state urban job growth, and the later will probably disappoint under current circumstances.

    It is very hard to think of ways in which the politics of this can be managed, but I would put my money on exchange rate policies, squeezing HK and Taiwanese investors and keeping rural reform on the shelf.

  • Posted by 4degreesnorth


    your first graph should be in semi-log scale, that would actually be much more informative as you well know, even if less visually spectacular.

    Now, what you are suggesting in effect is that the Chinese current account surplus could well undergo significant downsizing in the few years ahead. Since the oil producers are likely to experience a similar movement in their current account, we must probably anticipate a major shift in the US current account. And that is where I find quite difficult to square things off: the US government sector is in the process of increasing its deficit, the US business sector looks like severely reduced profits, e.g. savings, will be the operational euphemism in the coming period, and if we look for households savings to take up all the slack and then some, then we must talk of a downward spiral for the real economy.

    As you well know, when the going gets tough, the toughs – ought to – go shopping (I actually saw that on a bumper in Carmel CA. during the 1991 recession!), or so hopes policy. What do you think ? Me, I have a horrible feeling that something is not quite squaring out going ahead.

  • Posted by DJC

    The Chinese government can spend its way out of a domestic recession. Unlike the US government, the Chinese government retained a $170 billion surplus in the past fiscal year. A little budget deficit isn’t so very bad. The Chinese need to move more quickly move into higher value exports to maintain their global competitive position.

  • Posted by DJC

    China’s State Council authorizes government stimulus package equilvalent to 7% of GDP for next two years. That should maintain an almost double-digit economic growth rate for China’s GDP.

    SHANGHAI — China announced a huge economic stimulus plan on Sunday aimed at bolstering its weakening economy, a sweeping move that could also help fight the effects of the global slowdown.

    At a time when major infrastructure projects are being put off around the world, China said it would spend an estimated $586 billion over the next two years — roughly 7 percent of its gross domestic product each year — to construct new railways, subways and airports and to rebuild communities devastated by an earthquake in the southwest in May.

    The package, announced Sunday evening by the State Council, or cabinet, is the largest economic stimulus effort ever undertaken by the Chinese government.

    “Over the past two months, the global financial crisis has been intensifying daily,” the State Council said in a statement. “In expanding investment, we must be fast and heavy-handed.”

  • Posted by bsetser

    I am not convinced that a log scale is better — it puts more emphasis on the change, but in this case the absolute size matters — especially when it comes to thinking about china’s impact on the world. i probably should though scale to world GDP ….

    4degrees — i tend to think that china’s current account will be stable. import prices are falling fast — and i suspect import volumes will fall too. basically, fewer imports will offset slower or zero export growth. the fiscal stimulus will most likely just offset a fall in investment. i hope i am wrong; i would like to see adjustment ..

  • Posted by DJC

    US Government may lose AAA rating from Paulson’s bailout of Wall Street banks

    The United States may be on course to lose its ‘AAA’ rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.

    “The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system” and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.

    “In the United States there is already a funding crisis, and they will have to sell a lot more bonds next year to fund the bailout packages that have already been signed off,” Hennecke told CNBC.

    In order to solve or stem the economic slowdown, Hennecke suggested the US would have to radically reduce spending across all sectors and recall all its troops from around the world.

    As for a stimulus package, there is not much of an industry left to stimulate back into life, Hennecke said.

  • Posted by gg

    df: If so, what will be the US position ?

    Since Taiwan stopped paying the premium (agencies), the only US position is in-the-straits, so to say. I wouldn’t` object if -Brad, the new Secretary- was thrown at the table as forcefully as a pre-condition. Next Gee, the 20, week.

  • Posted by DJC

    From Washington Post:

    Hank Paulson violated federal law with Wall Street bailout bill – Legal Experts

    The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

    But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

    The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal.

    “Did the Treasury Department have the authority to do this? I think almost every tax legal expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes.

  • Posted by 4degreesnorth

    “i would like to see adjustment ..”

    Surely, you jest…

  • Posted by London Banker

    @ Brad
    I posted a comment this morning. Ever since it has said it is “awaiting moderation.” I haven’t got this message before so am wondering what triggered it.

    I’ll repost if necessary. Main point was that the collapse in trade is driven by the credit crisis and distrust among banks – so reduction in letters of credit. This is textbook contagion of financial liquidity crisis to the real economy, joblessness, growth and hunger.

  • Posted by DJC

    China’s Foreign Ministry says “No” to Obama’s demand for further yuan revaluation. Chinese Yuan to devalue versus US Dollar in 2009 by 3-4 percent.

    Nov. 6 (Bloomberg) — Barack Obama’s calls for changes in China’s yuan policy may put the president-elect on a collision course with the U.S.’s second-largest trade partner, which is holding the currency stable to support its export-led economy.

    Obama said China must stop manipulating the currency in a letter to the National Council of Textile Organizations released on Oct. 24. The People’s Bank of China has kept the yuan almost unchanged against the dollar since mid-July as it shifts focus from countering inflation to sustaining growth amid a global credit crisis. The Foreign Ministry said last week the U.S. shouldn’t blame its trade deficit on exchange rates.

    “Obama may exert more pressure on China’s foreign-exchange policy to boost U.S. exports and curb unemployment, but China will first consider its own economic fundamentals,” said Ha Jiming, Hong Kong-based chief economist at China International Capital Corp., the nation’s first Sino-foreign investment bank. He predicts the yuan will weaken as much as 3 percent against the dollar in 2009.

    Zhang Xiaojing, director of the department of macroeconomics at the state-run Chinese Academy of Social Sciences wrote, “Foreign countries should not criticize more on the yuan policy.”

    LOL. 🙂

  • Posted by bsetser

    LB — I should have been looking in the moderation queue this am. my apologies. nice comment.

    DJC — the CNY will be a source of contention in the obama administration, no doubt about it. the current mix is dangerous — as $ strength is leading to rmb strength, which makes it hard to convince china to allow the currency to appreciate v the USD (even tho it has appreciated in a big way v a basket). yet the USD/ CNY is what American voters in the midwest care about. It will be a hard issue. The stimulus, if real, will help …

  • Posted by DJC

    The Washington Consensus

    Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies; they play golf together; they have links to the Council on Foreign Relations and the Bilderberg; they act concurrently in accordance with the special interests of Wall Street; they meet behind closed doors; they are on the same wave length; they are Democrats and Republicans.

    While they may disagree on some issues, they are firmly committed to the Washington-Wall Street Consensus. They are utterly ruthless in their management of economic and financial processes. Their actions are profit driven. Outside of their narrow interest in the “efficiency” of “markets”, they have little concern for “living human beings”. How are people’s lives affected by the deadly gamut of macro-economic and financial reforms, which is spearheading entire sectors of economic activity into bankruptcy.

    The economic reasoning underlying neoliberal economic discourse is often cynical and contemptuous. In this regard, Lawrence Summers’ economic discourse stands out. He is known among environmentalists for having proposed the dumping of toxic waste in Third World countries, because people in poor countries have shorter lives and the costs of labor are abysmally low, which essentially means that the market value of people in the Third World is much lower. According to summers, this makes it far more “cost effective” to export toxic materials to impoverished countries.

    The 1997 Asian Crisis: Dress Rehearsal for Things to Come

    In the course of 1997, currency speculation instrumented by major financial institutions directed against Thailand, Indonesia and South Korea was conducive to the collapse of national currencies and the transfer of billions of dollars of central bank reserves into private financial hands. Several observers pointed to the deliberate manipulation of equity and currency markets by investment banks and brokerage firms.

    While the Asian bailout agreements were formally negotiated with the IMF, the major Wall Street commercial banks (including Chase, Bank of America, Citigroup and J. P. Morgan) as well as the “big five” merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were “consulted” on the clauses to be included in the Asian bail-out agreements.

    The US Treasury in liaison with Wall Street and the Bretton Woods institutions played a central role in negotiating the bailout agreements. Both Larry Summers and Timothy Geithner, were actively involved on behalf of the US Treasury in the 1997 bailout of South Korea:

    What happened in Korea under advice from Deputy Treasury Secretary Summers et al, had nothing to do with “financial aid”.

    The country was literally ransacked. Undersecretary of the Treasury David Lipton was sent to Seoul in early December 1997. Secret negotiations were initiated. Washington had demanded the firing of the Korean Finance Minister and the unconditional acceptance of the IMF “bailout”.

    What we dealing with is an entire ” old boys network” of officials and advisers at the Treasury, the Federal Reserve, the IMF, World Bank, the Washington Think Tanks, who are in permanent liaison with leading financiers on Wall Street.

    Whoever is chosen by Obama’s Transition team will belong to the Washington Consensus.

  • Posted by credulous_prole

    get around CNY-USD by having china expand credit and couple their capital markets to those in US/europe, lowering financing cost in China and avoiding an argentina situation there by creating sovereign credit market in a politically… interesting country with inchoate consumption.

    In short term, China can maintain exports. In long term, China loses seignorage rights, and so it’s a good compromise considering no one will let this agreement last TOO long. =)

  • Posted by fly

    You are absolutely right a bigger boom means a bigger bust, brad.

    The “stimulus package” unveiled over the weekend is better called a “social stability project”.

    What’s happening now is that millions of migrant peasant workers are being laid off from the manufacturing and construction sectors, and there are no jobs for them. Meanwhile, stockpiles of all kinds of merchandise are building up fast, threatening the cash flow and survival of thousands of businesses, many of whom borrowed from banks. The downward spiral could get out of control as rampant overcapacity in manufacturing unwinds.

    The ten-point package, if you read the fine prints, is almost entirely directed at providing jobs for this large group of recently unemployed, and saving a few industries like steel and cement from bankruptcy. Railroads, highways, low-rent housing, rural infrastructure. The Chinese government is in Roosevelt New Deal mode.

    Nothing in the package helps move the large and growing inventory of homes, autos, electronics and other consumer products. Property price will continue to slide. Urban jobs and salaries will be slashed. People feel less secure by the day. Optimism from just a few months ago is disappearing fast.

    If successful the package will prevent the recession from developing into a political crisis that could end up in large scale violence and bloodshed.

    At this point official GDP numbers for next year (8-9%) are to calm the increasingly anxious domestic and foreign investors. Export has peaked, and this export oriented economy will not see any real growth for the duration of this global recession, which I suspect will be long.

  • Posted by gillies

    i do not know if a bigger boom implies a bigger bust – but i would suspect that a more leveraged boom implies a more deleveraged bust – and a more globalised boom implies a more global bust.

    coordinated global measures sounds like the road to peace, but in fact some ‘deglobalisation’ and fragmentation, with economic blocs moving out of step with each other, is the road to greater tranquility.

    the present troubles link irish donkeys with shanghai flats – economic activities that need have nothing to do with each other, and would not have nothing to do with each other if capital were not so free to move about across borders.

    time to revise the most cherished of ideas. the current state of free market capitalism is starting to make not only socialism, but protectionism, look safe and sensible.

  • Posted by Patrice Hill

    Mr. Setser, while everyone’s been calling on China to stimulate domestic spending, isn’t the prospect of China directing a good part of its reserves toward domestic spending worrisome for the United States?

    Doesn’t it mean less capital will be flowing here to finance our debts and deficits? As I understand it, the housing market in particular could be hit with higher mortgage rates, since China has been a major buyer of Fannie and Freddie debt.

    What is your perspective on this?

  • Posted by bsetser

    The US economy needs demand for its goods more than the US Treasury (or even the agencies) need financing. We should want strong demand for our goods to induce more investment in the export sector, even if this means a bit of upward pressure on us interest rates. the old trade off where the itnerest of exporters was subordinated to the interest of the housing sector helped create the current mess.

    moreover, my view is that absent this stimulus china’s trade surplus would have gone up (largely b/c of the fall in commodity prices would have brought imports down faster than exports fell) — this won’t end chinese demand for us assets. moreover americans are going to be saving more, so we will be more able to finance our own fiscal deficit. all that is good …

    i do worry that china has stopped buying agencies and instead is only buying treasuries; it would be better is china gradually reduced its purchases of both as it stimulates its own economy rather than going cold turkey. but i would rather see china buy more us goods than see china increase its overall purchases of US debt. right now the money that used to flow into agencies is flowing into treasuries .. there is scope for china to resume agency purchases even if its overall demand for us debt slows a bit

  • Posted by JSharap

    With all the surplus capital investments in China, one shouldn’t be too surprise if the excess goods will be dump into the world markets soon. Prices of goods will be slash to pay the banks when the loans are due.

    Since the Chinese are the lowest cost producers in the world, they could the the ‘last man standing’ in terms of forcing other players out of the world market through price cutting mechanism. To survive, one should start slashing and selling excess inventory before the Chinese does. The next option if one wants to retain certain industries in one’s country is protectionism.

  • Posted by Twofish

    DJC: Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies;

    Actually no. They all disagree very sharply with each other on policy, and none of them are fans of the Washington Consensus (which has been dead for about 15 years.)

    You are making the same mistake that a lot of Americans make when they look at the Chinese Communist Party, which is not to note that there are some real policy differences among the people that run the United States. If you aren’t in the ruling elite, you need to be extremely sensitive to disagreements within the ruling elite, because it’s only by noting these differences and figuring out which side you support, can you have any chance of making a real political difference.

    And rather than fighting this power elite, Beijing now has a place at the table.

    bsetser: yet the USD/ CNY is what American voters in the midwest care about.

    Actually I think that right now people in the Midwest have far more to worry about than USD/CNY. Changing USD/CNY is not going to appreciably increase US demand for automobiles.

  • Posted by Twofish

    fly: Nothing in the package helps move the large and growing inventory of homes, autos, electronics and other consumer products.

    Actually it will. If you give people lots of money to spend and the price of homes, autos, electronics, and other consumer products drop, eventually people in China will start buying them.

    fly: Property price will continue to slide. Urban jobs and salaries will be slashed. People feel less secure by the day. Optimism from just a few months ago is disappearing fast.

    And then you will end up with total doom and gloom stories about how the Chinese economy is dead, at which point things will hit bottom, and then the cycle starts up again. We’ve been through this about four or five times in the last thirty years.

    bsetser: The US economy needs demand for its goods more than the US Treasury (or even the agencies) need financing.

    Then generate it. Have the US government undertake a massive Keynesian stimulus. There is something that I’ve noticed that I think is almost absurd if you think about it.

    Because the US has this ideological opposition to the Federal government intervening in the US economy, it suddenly becomes the responsibility of the Chinese government to do what the US government cannot or will not do.

  • Posted by Twofish

    gillies: time to revise the most cherished of ideas. the current state of free market capitalism is starting to make not only socialism, but protectionism, look safe and sensible.

    You can’t uninvent the internet and the container ship.

    The problem with protectionism is that the companies that are on the brink already have global supply chains. It’s not like the 1930’s or even the 1980’s, where you can reasonably argue that protectionism will save General Motors or Ford. As it is, any sort of protectionism will kill whatever companies are on the brink right now.

    It is interesting that no one has argued in favor of protectionism, and I think this is because any multinational with five minutes of thought would realize that it is suicidal.

  • Posted by RebelEconomist

    Although I think there are better ways of handling China’s exchange rate policy, if the new US administration is considering protectionist measures, I would suggest that Reserves Control would be the most suitable.

  • Posted by credulous_prole

    The US is collaborating with China as far as I’m concerned: China stimulus = RFC a la chinoise.

    EVERY country that can WILL stimulate, but the key is coordination.

    Russia can participate or not, but it really doesn’t matter if it sinks: it only means cheaper energy and materials.

  • Posted by fly

    Patrice Hill: isn’t the prospect of China directing a good part of its reserves toward domestic spending worrisome for the United States?

    bsetser: but i would rather see china buy more us goods than see china increase its overall purchases of US debt.

    China will maintain a trade surplus against US, just like Japan, South Korea and other Asian countries. It’s a long term policy and not going to change.

    Purchase of US debt is also for long term strategic and not investment reasons.

    China will not sell its US debt holdings to finance domestic economy. They would rather print and devalue the RMB.

    As long as China continues to rack up dollar reserves, their influence and power grow. That much is now evident.

    For the US this is a losing game in the long run. American share of the global economy declines, as well as its influence and power.

    What do you think of Warren Buffet’s idea of balancing trade with export credits?

  • Posted by jwy

    Mr. Setser, Im curious as to your opinion of how the global unraveling and recession will affect the rest of the BRIC economies sans China.

  • Posted by Twofish

    RebelEconomist: Existing money laundering regulations and supervision should make it impossible for countries to evade Reserve Control by disguising government acquisition of dollar assets, such as by using agent fund managers, on anywhere near the scale necessary to affect exchange rates.

    No it won’t. US Citizen A buys US Treasuries. Citizen A then sells “redemption notes” to the Chinese government which entitle the holder to whatever US Treasuries are paying. Investment banks do this all the time. OK. You put a tax on all dollar assets. Fine, those redemption notes aren’t denominated in dollars. They are denominated in “dillars” in which one dillar happens to be worth exactly one US dollar. There’s no tax on dillar assets.

  • Posted by bsetser

    2fish — just in case there is any doubt, i do support a fiscal stimulus in the us. my concern was that a global policy mix of stimulus in the us and various props for exports in china might work against a necessarily rebalancing. i had hoped consequently to see china also takes steps to stimulate its own economy – -and today’s measures are clearly steps in the right direction.

  • Posted by satish

    if US want to make china to revalue, just buy all hard cash and deposits floating in the market. This will simply starve china which largely a cash based society of any liquidity in the system thereby forcing china to revalue.

  • Posted by RebelEconomist


    Sometimes (no, often) I think you just like being contrary. How is Citizen A going to finance and accumulate billions of dollars in treasuries without attracting the notice of the US authorities? Do you think that the US authorities would not already have powers to disrupt an arrangement like the one involving dillars that you describe, if, for example, Citizen A was working as an agent of a Columbian drug dealer? Capital controls are generally imperfect, but they can at least constrict capital flows while other adjustments are made. Try to be more constructive.

  • Posted by ReformerRay

    Protectionism rightly has a bad name. But, the bad name should be limited to classical protectionism, which is the imposition of import restrictions on specific products whose domestic producers have political clout.

    Imports can and should be restricted from entry into the U.S. by some means other than protectionism, as classically defined.

    These other ways include “import certificates” as proposed by Warren Buffett and tariffs limited to all imports from the five nations that are responsible for 60% of the U.S. trade deficit in 2005 and 2006.