I am reviewing David Stockman’s book, The Great Deformation, for Barron’s. I want to run two things by you folks that gave me pause. These probably won’t make it into the review, but I’m nonetheless curious:
==> On page 61 he writes:
This arrangement [of Asian countries keeping their currencies artificially low vis-a-vis the dollar in order to boost exports to US] defied every tradition of sound international finance…During the nine years after 1991, the US trade accounts literally collapsed, with imports growing at 11 percent annually…The trade deficit thus surged from $66bn in 1991 to $450bn by the year 2000…It was an unfathomable figure by the canons of classic finance because it was literally upside down. The reserve currency country was supposed to run a trade surplus and export capital to less developed trading partners, not incur massive deficits and drain capital from them. [Bold added.]
It’s the part I put in bold that intrigues me. First, is that right? Has anyone else heard of such a relationship?
Next, how does this work under a commodity standard? Let’s say the whole world uses gold, and I mean literally they use gold as the money, not sovereign currencies that are redeemable in gold. Suppose one country just so happens to have the only gold mines left. How would that show up in the trade statistics? Depending on the accounting, you would arguably see that country run a perpetual trade deficit with the rest of the world, as it shipped out money every year, in exchange for net imports of goods.
==> On page 63 Stockman writes that Professor Taylor “had seen fit to name the rule in his own honor.” Is that right? The “Taylor Rule” got its name from Taylor himself, in narcissistic fashion?