by the Sandwichman
Following up on PGL's two Brads posting, Sandwichman notes the following from de Long:
"As long as imbalances of world trade and capital flows unwind slowly and smoothly, the magnitude of any global economic distress should be relatively small."
My question -- relatively speaking -- would be: "relatively small" compared to what planet?
As the chart above indicates, the US Dollar has already been unwinding slowly and smoothly against the Euro and the Loony for quite some time. For the most part, increases in US stock market indexes have only been nominal, in terms of the steadily depreciating US Dollar.
From Sandwichman's Loony perspective, the USD has been a Potemkin currency for the last five years. The only thing MASKING what otherwise would have manifested as the economic distress of the past five years has been the bubblicious infusion of easy credit. If "nothing happens" -- that is if "imbalances of world trade and capital flows unwind slowly and smoothly" those deferred chickens are comin' home to roost. This would not be a "new" global economic distress but only the realisation of a distress that has been there all along.
There's no such thing as an unassisted smooth landing -- "unwinding" will not do the trick, no matter how lovingly slow and smooth. It will require some form of massive intervention to forestall or mitigate global economic distress. The only questions are: what's left? and will it work?