0

A Balanced Look at Sino-American Imbalances

BEIJING – Before July 2007, most economists agreed that global imbalances were the most important threat to global growth. It was argued that the United States’ rising net foreign debt-to-GDP ratio – the result of chronic current-account deficits – would put a sharp brake on capital inflows, in turn weakening the dollar, driving up interest rates, and plunging the US economy into crisis.

But this scenario failed to materialize. Instead, the crisis stemmed from the US sub-prime debacle, which quickly dragged the global economy into its deepest recession since the 1930’s.