Okay, this one requires an incredibly big ARGHHHHHHHHHHHHHHHHHHHHHHH! In a discussion of plans for an internationally coordinated fiscal stimulus the Post told readers that "while China and Japan enjoy a surplus of reserves, spending increases will drive the United States, Britain and many other European countries deeper into debt." What on earth is this supposed to mean? Japan has the largest government debt relative to the size of its economy of any major industrialized economy. The article is obviously referring to its trade and international asset position. Japan is a huge net international creditor since it has been running large trade surpluses for decades. While the United States, Britain and some other European countries are now running trade deficits (most rich countries other than the United States are still international creditors), trade deficits are not directly affected by government borrowing. While the U.S. trade deficit will be larger, other things equal, if the U.S. economy grows more rapidly (we will purchase more imports), if other economies also grow more rapidly as a result of coordinated stimulus (which increases demand for U.S. exports), then the U.S. trade deficit may not be increased by this stimulus plan. The primary cause of the trade deficit is the over-valued dollar. The Post has almost never made this point to readers and quite frequently makes incorrect assertions like the one in this article.
--Dean Baker
