The Persistence of Global Imbalances

The primary focus of this year’s Federal Reserve Bank of Kansas City symposium in Jackson Hole, Wyoming, which convenes the world’s leading central bankers, was not explicitly monetary policy. Fed Chair Janet Yellen’s opening remarks emphasized the changes in regulatory policy that followed the 2008 global financial crisis, while European Central Bank President Mario Draghi’s luncheon address dwelled on the need for continued reforms in Europe to sustain the eurozone’s recent economic recovery.

But it was global trade and finance – the key forces shaping the economic outlook and financial market conditions with which central bankers grapple – that took center stage. On the effects of the globalization of trade in goods and services, the discussion emphasized the costs to domestic employment, wages, and inequality. On the finance side, international capital flows and global imbalances were the primary focus.

And here, the old adage applies: the more things change, the more they stay the same. For most of the last four decades, the United States has been a net importer of capital from the rest of the world.