European Central Bank President Jean-Claude Trichet hasn’t been my favorite figure throughout the duration of this economic crisis, but I do think he’s right to be emphasizing the importance of addressing the global imbalances in trade. Of course I’m sure part of the reason he’s ringing the alarm bells about this is that the Eurozone as a whole was close to balance between imports and exports pre-crisis, so the upshot of this diagnosis is that someone else has to change.
Still, he’s right. And neglect of this point is what does give me pause about the talk of a third stimulus. It seems to me that where more stimulus is really needed is in the surplus countries—Japan, China, the oil exporters. Aggregate U.S. demand probably should fall from where it was pre-crisis—it’s the only way to rebalance an unsustainable situation. But that means demand needs to emerge elsewhere.