By M. Vermeiren
The writer examines the oblique macroeconomic roots of the worldwide monetary quandary and Eurozone debt problem: the escalation of world alternate imbalances among the united states and China and neighborhood alternate imbalances within the Eurozone. He presents new insights into the resources and dynamics of energy and instability within the modern worldwide financial approach
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Extra info for Power and Imbalances in the Global Monetary System: A Comparative Capitalism Perspective
It should be noted that the main beneﬁt the United States derives from its power to rearticulate foreign interests is that it further strengthens its power to delay adjustment. Downward pressures on the dollar, for instance, induce foreign governments with signiﬁcant amounts of dollars to defend the value of their reserves by further increasing their demand for dollars, thus reinforcing the capacity of the United States to ﬁnance its external deﬁcits. The power of the United States to rearticulate foreign interests via processes of entrapment only reinforces its macroeconomic autonomy by further relaxing the balance-of-payments constraint, yet does not necessarily improve its capacity to reduce its external deﬁcits by imposing macroeconomic adjustment onto these foreign countries.
First and foremost, policymakers must be free (or at least relatively free) to pursue national objectives in the speciﬁc issue area or relationship without outside constraint, to avoid compromises or sacriﬁces to accommodate the interests of others. Autonomy, the internal dimension, may not be sufﬁcient to ensure a degree of foreign inﬂuence. But it is manifestly necessary – the essential precondition of inﬂuence. Therefore, the argument is that a nation must be ﬁrst and foremost free to pursue its domestic macroeconomic goals without external constraint – by being able to delay adjustment – before it can be in a position to enforce compliance elsewhere by forcing other nations to do the adjustment.
Second, a nation’s “power to deﬂect” refers to its capacity to divert the “transitional cost of adjustment” onto other countries. Whenever balance-of-payments adjustment between deﬁcit and surplus countries occurs, distributional implications will arise: adjustment can be accomplished through either a market-driven fall of exchange rates, prices and incomes in deﬁcit countries, reinforced by restrictive monetary and ﬁscal policies, or a market-driven rise of exchange rates, prices and incomes in surplus countries, reinforced by more expansionary monetary and ﬁscal policies.