Living with Global Imbalances: A Contrarian View

Richard N. Cooper (Harvard University)
Policy Brief
November 2005

Three propositions have become conventional wisdom in Washington and elsewhere: Americans save too little. The US current account deficit is thus unsustainably large. The Chinese currency must appreciate significantly to bring the global economy into sustainable balance. All these separate but related propositions are highly questionable, the author says. He suggests that Americans save quite enough for future generations, that the startlingly large US current account deficit is not only sustainable but a natural feature of today's highly globalized economy, and that a revaluation of the Chinese currency, far from alleviating global imbalances, would run the risk of precipitating a financial crisis.