Richard Koo’s latest note has a bit of sectoral balances mixed in with a clear understanding that the USA is not going to become Greece (now he just needs to get rid of his belief that banks lend reserves and could create hyperinflation via QE and we’ll be on the same page!). This is a changing trend we’ve seen over the years as more and more economists come around to the understanding that being the currency issuer matters (an epiphany Paul Krugman just recently had). In this note, Koo cites the fact that these myths still threaten the global economy:
“While Japan and the US can set their own fiscal policy without regard to EU constraints, both countries have fallen under Greece’s spell to some extent even though their private sectors are in the process of deleveraging.
President Obama, for instance, cited Greece’s example when arguing for fiscal consolidation and grandly claimed he would halve America’s fiscal deficit by the end of his four-year term. In Japan, senior officials in both the Kan and Noda governments, including the current prime minister himself, have repeatedly used Greece to help make a case for fiscal consolidation—and specifically an increase in the consumption tax.”
We also heard this again from Mitt Romney last night when he compared the USA’s fiscal situation to Greece. When will people realize that being the currency issuer is what matters here? When will people realize that an autonomous currency issuer like the USA or Japan cannot “run out money”? When will people realize that the USA is not turning into Greece and that comparing the two is like comparing apples and oranges?