Martin Wolf and Richard Felson touch on trade deficit topic

rdan

Bloggingstocks points to well known mainstream economists coming around to an Angry Bear point of view:

Up ahead: two bigger tasks

What’s more, Wolf sees two additional tasks (structural changes) that are just as important to the goal of U.S. economic recovery — but that may be even harder to implement: removing toxic assets from the banking system and reducing the U.S.’s structural current account deficit (the trade deficit).

The first is the forced write-off of bad assets, fiscal recapitalization of the banks, or debt-for-equity tactic, and it should be done comprehensively and quickly. Slow, gradual bad-debt reduction is not the correct policy, Wolf argues, as it would delay the economic recovery.

Second, the U.S. must reduce its trade deficit, Wolf argues, and the reasoning here is overt and obvious enough: the U.S. can not afford to see demand float overseas (as it did throughout this decade), but needs that commercial activity to remain at home.

Economist Richard Felson agrees with Wolf, except regarding the pace of bank/financial institution removal of toxic assets. “Toxic asset write-downs need not be as quick as Wolf suggests because U.S. real estate prices, although they were high and in a bubble, were not as high relative to GDP as, for example, Japan’s during its bubble.” The toxic asset write-offs (or capital infusions by the government), should not take 10 years, in Felson’s view, but they should not be done in a year, either.