Has the trade imbalance reached its limit as China stops buying US treasuries?
One of the features of our style at the Fleet Street Letter is the top-down approach to factors that influence our prosperity. The enduring theme at the moment is the fall-out from reckless lending to Americans with poor credit histories. These toxic loans were repackaged with good quality instruments and sold on throughout the world. Like some financial virus it has brought some credit markets to a halt. The different reactions of policy makers around the world had got me thinking. Why is it that the Federal Reserve and the White House are prepared to slash interest rates aggressively, flood the markets with the liquidity and engage in tax cuts, while the Bank of England and European Central Bank are much more wary of loosening monetary policy because of worries about inflation and concerns about moral hazard? Are the European authorities being too complacent? Or does the US have an insight into the specific dangers it faces?
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