De-coupling Under the Loop
I did promise that I would have more to say about de-coupling and consequently I have a note up over at GEM. It is fairly long so be warned but on the other hand I felt that I could have written much more on this. The next steps becomes to apply data to the argument. A reasonable way forward for example could be to use Stephen Roach's criterias for de-coupling; 1) sustainable domestic demand, 2) diversified export mix, and 3) policy autonomy. Well, that is for another day ... here is the summary from my note.
In this note, I have explored the notion of de-coupling in an imminent perspective of the US slowdown as well as in a more broad and longterm strucutural perspective. On the former account I positioned myself alongside the consensus skeptics towards de-coupling and most notably, I tend to agree with Stephen Roach that de-coupling will only be tested on the back of a sustained drop in US consumer spending over several quarters. On the latter account I have argued that de-coupling is often not well understood in a structural perspective since it is important to take into account the global imbalances and their structural nature. Moreover, I have argued that de-coupling in a world where Bretton Woods II soldiers on is not justified given the fundmentals of the Eurozone and Japanese economies. Lastly, I have proposed the more formal inclusion of demographics into the general debate on de-coupling and global imbalances and specifically a consideration of how demographics over time might represent a strong explanatory variable in terms of the account of international capital flows.
I leave this note on an open string. I clearly have my perception of the world and others have their's but particularly in terms of demographics I believe the case is strong for more scrutiny as to how population ageing and other demographic variables influence the much debated notions of de-coupling and global imbalances.