Global Crisis

US can afford to take greater risks

Posted on Wednesday, October 27, 2010


Published: October 27 2010 01:35 | Last updated: October 27 2010 01:35
From Mr John Bishop.
Financial Times
Sir, Martin Wolf does well to contrast the fiscal policy approaches adopted by the US and the UK when both have ballooning budget deficits to manage (“Britain and America seek different paths from disaster”, Comment, October 20). He does not, however, discuss one highly significant difference.
The US, even if fraying a little at the edges, remains the world’s most substantial political power and largest economy. It also has the world’s main reserve currency in the US dollar. In these circumstances, there may be an underlying assumption, to a fair extent justified, that the rest of the world will have no option but to finance US current account and budget deficits. Thus running greater risks with the extent of these deficits may seem a viable strategy.
The UK, on the other hand, though not comparable with Greece, is nevertheless only one of a number of second-line powers and economies. While foreign finance for its current account and budget deficits has generally been available for many years, there is no assurance that it will remain available in all circumstances. Indeed, if anything, history tells us that when the UK’s economic position last came under severe threat in the mid-1970s, foreign finance became unavailable on any reasonable terms, forcing a resort to conditional support from the International Monetary Fund. Hence, it becomes understandable if policy is biased towards not taking too much risk in terms of deficit levels.
In other words the contrast, to which Mr Wolf alludes, is at least partly explicable by the differing statures and experiences of the two nations. Although I would certainly share his fascination to see the outcomes of these two strategies, these will need to be interpreted in terms of the differences, as well as the similarities, in the two starting positions.


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Now I feel sputid. That's cleared it up for me

Nevea 12/21/2011
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