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News Link • Federal Reserve

Bernanke's Choice

• Richard Duncan for The Daily Reckoning
For twelve years the US trade deficit financed the US budget deficit and held down US interest rates. From 1996 to 2008, the US trade deficit exceeded the government’s budget deficit every year. The dollars sent abroad to pay for the trade deficit were accumulated by the central banks of the trade surplus countries, who then reinvested them in US government bonds. As discussed in earlier posts, those central banks bought up the dollars entering their economies in order to hold down the value of their currencies and so perpetuate their countries’ low-wage trade advantage and their export-led economic growth. Read more: Bernanke's Choice

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