Saturday, August 16, 2003

And you thought Arnold was California's biggest problem.
Growing fiscal problems in U.S. states are becoming more difficult to resolve quickly, and California's crisis might require painful remedies, the International Monetary Fund's top economist said Thursday.

In an interview with Reuters, Kenneth Rogoff said California's massive $38 billion deficit was going to prove especially hard to turn around without tough budget cuts.

If California were a country, the size of its primary deficit, not counting interest payments, would rank in the top five in the world, he said. . . .

"It is going to be very hard to turn this around quickly," Rogoff said. "Looking at the California situation it's hard to recall any region that's terminated a deficit of that size without a lot of pain and growth steroids."
This comment of Rogoff's really stunned me, however.
Turning to another deficit that is a worry for the IMF, Rogoff said the growing gap in the U.S. current account, the broadest measure of trade, thus far has been gradual, letting steam out of "what was an overvalued" U.S. dollar.
Huh?? The gap has been growing all year and six of the seven largest monthly deficits ever have been in 2003. The US current account deficit is so far 25% larger than this time last year. How exactly is this letting off steam?? Particularly since the dollar has been rising the past two months??

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