Global Economic Prospects 2015

The global economy is still struggling to gain momentum. Read more ...

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Providing information, analysis, and advice on global trends in the world economy.  Find out more ...

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Submitted by ivailo izvorski on
Here is an issue to ponder. The U.S. current account deficit has been rising from the lows reached during the crisis. So even with QE2, net capital flows TO the U.S. - that finance the larger deficit - are larger now than before the crisis. Thus, QE2 does not directly contribute to capital outflows from the U.S. Now, if QE2 had lowered long-term yields in the U.S., you could say that money is so cheap it is affecting global liquidity. But long-term yields have risen since QE2 started to be implemented. Last but not least, well before the crisis began, the diagnosis of the U.S. dollar was that it needed substantial depreciation to help bring the U.S. current account closer to balance. And reserachers and even governments throughout the world were critical of the large U.S. consumption relative to GDP. So what is the real issue?