- Blog Post
- Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.
Rubin doesn’t seem to be in Steve Roach’s camp. He thinks China’s peg and the resulting reserve accumulation has something to do with the US current account deficit.
Rubin: ... I surely never thought, if you have the kinds of imbalances you have today, you'd have the kinds of exchange rates we have today ... . To put it differently, I never thought in the face of very substantial trade imbalances, you would have inflexible exchange rates. I don't think that was part of anybody's anticipation. Another thing I don't think anyone anticipated, though it's a related thing, is that you would have these very large influxes of capital, which is what's happening in this decade--it didn't happen in the '90s--that were designed to support the dollar in order to subsidize exports [from China and other Asian nations].
So all of that has occurred. I don't think I expected the exchange rate system to work that way--I don't think anybody did. If they did, I never heard anybody say it.
Greider: Well, leave aside what people thought.... We've now got a situation that you yourself describe as quite serious in both trade and current-account deficits.
Greider: Does that suggest something else should have happened in the design running up to the current situation?
Rubin: I don't think that's a design issue. I don't think that's actually a trade issue. I think it's a foreign exchange issue.... If you had had fully flexible exchange rates. Though I'm not advocating, by the way, that China go to that immediately because I think it might create a lot of chaos....
Rubin certainly doesn’t ignore the United States contribution to these deficits either.
.. if we had higher savings rate, we'd have a lower trade deficit. But, of course, nobody in our term thought we would go back from substantial [federal budget] surpluses to substantial deficits. Nor should we have. Nor do we have to.
Greider though was most struck by Rubin’s concern that the benefits of US growth have not been widely shared – something Paul Krugman also highlighted today.
Greider: But there was this pattern--except for this window in the last half of the 90s, when things began to line up again--that greater productivity doesn't get distributed in growth too broadly. That's why the inequality--wages don't keep up with productivity...
Rubin: Except for those years, you are correct. My recollection is, if you take the last thirty years, roughly speaking, that for twenty-five of them, real median wages have been stagnant despite rising GDP growth.
Stagnant median wages may not be quite as pressing an issue as what is now going on the Middle East, but it is a huge issue. And with oil prices heading up even further, it may become an even bigger issue. And like Greider, I am glad Rubin is calling attention to it.