Debt Trap Dynamics: Time To Think The Unthinkable

With the government and external deficits both so large and the private sector so heavily indebted, it is said that satisfactory growth in the US cannot be achieved without a large, sustained and discontinuous increase in net export demand. After perusing the trade data from last year, it is doubtful whether this will happen spontaneously through a continuous fall in the external value of the dollar, and it certainly will not happen without a cut in domestic absorption of goods and services by the US which would impart a deflationary impulse to the rest of the world.

The truth of the matter is this: Across three decades, only one economic event has been guaranteed to produce balanced US trade: a recession.