The US economy: weaknesses of the "strong" recovery

Abstract

Macroeconomic analysis is facilitated if the main income and expenditure variables which make up the GDP are arranged in a double entry format so that they can all be seen as transactions involving at least two parties. Such a framework shows how the gap between each sector’s receipts and outlays implies an equivalent rise or fall in its net acquisition of financial assets. Using this methodology, the paper considers the medium term prospects for the US economy, concluding that they look pretty stark. Either an uncovenanted and sustained rise in net export demand provides a motor for expansion in a quite new way, or the fiscal policy continues to generate twin (budget and balance of payments) deficits, possibly growing, with surely unacceptable implications for indebtedness at home and abroad; or the US economy relapses into stagnation. The rest of the world must stop relying on the US to provide the motor for growth. It will have to generate a motor of its own and, probably, accept that the dollar must depreciate quite a lot more. Paper originally published in the BNL Quarterly Review, vol. 57 n. 229, June 1995, pp. 131-139. JEL Codes: F3, G1, N1, B5

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