Living with global imbalances: A contrarian view

This paper questions three separate but related contentions: that Americans save too little; that the large US current account deficit is unsustainable; and that the Chinese currency (rmb) requires large appreciation. Viewed from the perspective of a knowledge-based economy in a globalized world undergoing dramatic demographic change, Americans save quite enough for the future and the US current account deficit is a natural and indeed an expected phenomenon. It can persist for many years. The current configuration of surpluses and deficits is mutually beneficial so long as Americans continue to invest productively. A significant revaluation of the rmb would yield little benefit and would run a grave risk of precipitating financial crises.