Tuesday, October 22, 2013

Abenomics Is Used To Show That The US Is Not Greece

Some members of the US "debt fix committee" argue that the US must reduce it debt or it will be in the position that Greece is in now.  Greece has to pay high interest rates on its sovereign debt.  China has been a major purchaser of US debt, and the very serious members of the "debt fix committee" argue that China will stop funding US debt if the government does not reduce its debt burden.

Paul Krugman uses Abenomics in Japan to make the point that the US should not be concerned with a reduction in Chinese purchases of US debt.  Japan is also a high debt country but it was concerned about the increase in Japanese debt purchases by China.  They were driving up the value of the yen which had a negative effect on Japanese exports.  Abenomics was designed to make investors concerned about the potential for inflation in Japan.  The intent was to increase the risk to investors who held the yen.  It seems to be working.  The yen has fallen in value and Japanese exports have become more competitive.  Monetary policy in the US has been designed to produce a similar result.  We would benefit from a bit more concern about US inflation and the dollar would fall in value and make US exports more competitive.  That might enable the US to grow its way out of its debt problems.  That option is not available to Greece which does not have its own currency.

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