- A positive trade balance is the goal, but the money has to go somewhere. So every global exporter is also a global investor. If accumulating assets is a policy requirement, and what happens to those assets is an afterthought, the result is generally poor performance.
- Most of these investments are bad (Saudi Tech funds, 80s Japan real estate, Germany sub primed loans, etc)
- Accumulating dollars:
- Trade more in dollars, need dollars during recession (debts still out there)
- By buying dollars, its own currency is lower - more exports, which then makes step 1 stronger...
- Some countries (Canada, US, Netherlands, New Zealand) have good overseas investment track records:
- But they all have current account defecits (import more than export)
- They have well developed financial centers, so their consumers overspend, but they are good at allocating resources
- What keeps it imbalance is that the exporters sell to the global middle class, become net savers, but are bad investors...the net borrowers are good investors