A Tale of Two Countries

The great thing about Accounting Identities is that they must be true.

The bad thing about Accounting Identities is that their truth is often trivial.

Tim Duy notes the reality: We can’t all be net exporters

The Greek crisis…is a reminder that global imbalances are still with us – and, if not corrected, will eventually threaten the sustainability of the global recovery. Indeed, how sustainable can any recovery be if the vast majority of nations are pursuing an export oriented growth strategy? After all, clearly that is not a game all can play – there needs to be a net importer to offset the net exports. Who wants to fill that role? If the US is pushed into filling that role, we have simply come full circle over the past three years.

There is an obvious nominee, as D-Squared noted today:

If you put Oliver Wendell Holmes (“the First Amendment does not protect the right to shout ‘fire’ in a crowded theatre”) and JM Keynes (describing Treasury anti-inflation policy in the 30s as “crying ‘fire, fire’ in Noah’s flood”) together, does that mean that German politicians talking about the inflationary consequences of a Greek bailout are shouting “Fire!” in a flooded theatre?

And follows that by telling the truth and shaming the Devil:

[T]he main issue the ratings agencies have is the Greek pension liability, and the main component of the austerity measures will end up being a reform of the pension system. The sovereign bond market is a curious place, where “He’s willing to cheat his own grandmother, that one”, can be a mark of the utmost probity.

One of these days, economists will admit that it’s life-cycle theory, not just Modigliani-Miller, that has destroyed the profession’s foundations.  Apparently, planning for the future and accepting deferred compensation is A Bad Idea.

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