Free Trade: After years of imbalances, a painful reckoning

After years of imbalances, a painful reckoning
By Steven Pearlstein
Washington Post Staff Writer
Thursday, November 11, 2010; 10:29 PM
It's been quite a week for business and economics news:

l The big Group of 20 meeting in South Korea that took some tentative steps toward correcting large and persistent global imbalances in trade and investment flows.

l The release of a bold plan to eliminate most of the federal budget deficit by the co-chairmen of the bipartisan National Commission on Fiscal Responsibility.

l The chorus of criticism of the Federal Reserve's plan to pump additional money into the economy - at home from Sarah Palin and other hard-money conservatives, and from foreign governments that see it as a backdoor way to devalue the dollar.

l And, finally, fresh concerns about Ireland, where even draconian cuts in public spending don't seem to be enough to convince investors that the Irish banking system can be rescued without bankrupting the government.

Here's the thing to understand: They're all really part of the same story - the story of how the United States was allowed to live beyond its means by trading partners that prospered by lending Americans the money to be able to consume more than they produce. It was a wonderful arrangement while it lasted, lifting millions in Asia out of poverty while letting Americans enjoy what appeared to be a higher standard of living - higher incomes, bigger homes, greater wealth, more public services. This unsustainable arrangement turned the United States from the world's biggest creditor nation into the world's biggest debtor. It was only when the credit bubble burst and the financial system nearly collapsed that it became clear how thoroughly this dysfunctional co-dependency had been woven into the world economy. (MORE)

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