[Stephen Roach} seems to have subscribed to the Underpants Gnomes theory of trade balances:
1. Increase savings
To be honest, sometimes I feel that I’ve spent most of my adult life knocking down the same misunderstanding, over and over again. I wrote about more or less the same issue more than 20 years ago:
There is a widespread view that world payments imbalances can be remedied through increased demand in surplus countries and reduced demand in deficit countries, without any need for real exchange rate changes. In fact shifts in demand and real exchange rate adjustment are necessary complements, not substitutes.
This is what I was trying to drive at in Slash and Grow, though I was more of an ‘elasticity pessimist”, to borrow another phrase of Krugman’s; it did not look like a collapse in the £ would necessarily give us the external demand we needed, but has in the past often seen see increased margins instead. I intend another post on this one day, you lucky people.
I think if I had titled the paper something to do with Underpants and Gnomes, it might have got more attention. And the choice of graphic would have been much easier.