How global economic imbalances resemble an ancient parable

The global economy faces the types of massive imbalances that preceded previous crises — despite important differences — and it's not yet clear how this debt cycle will end. Why it matters: The last four decades of economic turbulence trace back to a similar underlying issue, that the world's biggest economies are chronically out of sync, former top International Monetary Fund official Gita Gopinath argued in a buzzy speech Monday evening. She spoke at the Atlanta Federal Reserve Bank's annual financial markets conference in Amelia Island, Florida. Gopinath pointed to three major eras of global imbalances: the U.S.-Japan tensions of the 1980s, which culminated in the Plaza Accord ; the buildup to the 2008 financial crisis; and today's standoff between the U.S. and surplus economies like China. "How will this one end compared to the previous two?" Gopinath asked. Zoom out: Policymakers are acting like the "blind men and the elephant" parable, she said. Just as each man in that story feels a part of the animal and has only a partial understanding of the whole, global economic leaders emphasize different symptoms of distortion while missing the larger system. Some point to unfair trade practices, industrial policy, fiscal deficits or the dollar's global dominance. What they're saying: "Everybody has their favorite view on what is responsible for the imbalance," Gopinath said. "Part of the challenge, frankly ... is trying to get everybody to say, 'Maybe can we all agree on what we're actually trying to fix over here — what is the problem that's generating global imbalances?'" The intrigue: The latest legal scrutiny over President Trump's batch of tariffs — implemented under Section 122 of the Trade Act of 1974, meant to be tapped when the nation is experiencing a "balance-of-payments deficit" — hints at Gopinath's analogy. Much of the legal fight centered on what exactly constitutes such an imbalance in the modern economy — with...

Original source: Axios