Well, one of the features in the Greenbook simulation, going back to the prior question, is the model’s ability to say that foreign policymakers act in a way that speaks to this codependence. One problem that we face collectively in the global economy is that the low interest rate environment for all concerned does limit the capacity of foreign central banks to stimulate domestic demand as they lose external demand. So zero-bound problems become quite relevant, as we highlighted especially in the paper that we circulated ahead of the June meeting. The most immediate and direct device we have for undoing the codependence is to get domestic demand abroad stronger and to do that through monetary policy stimulation; but that’s limited to some degree by zero-bound problems. And when we run these model simulations, we tend to hit the zero bound, particularly in the euro area, say, where the policy rate is sitting at 2 percent right now. And, of course, Japan is already in the vicinity of the zero bound, so there’s not a lot of scope for stimulating domestic demand.
If I wanted to, I could tell a happy story. There are plenty of happy stories. We’ve been through this before—in the 1980s—and we’ve lived through the past decade. The world hasn’t stopped turning; even the financial markets haven’t stopped turning. There’s a lot of potential in the developing world for capital accumulation, either financed out of the high saving rates of those countries or financed out of foreign direct investment that doesn’t keep flowing into the United States but goes to China, to the rest of Asia, and maybe even to Brazil and other Latin American countries. There’s a lot of potential in Brazil. There have been investment bank articles that I’m sure some of you have seen about how fifty years from now China, India, and Brazil are going to be the dominant economies in the globe. If that capital accumulation is realized, that’s domestic demand in the rest of the world. The market economies of the globe can handle all that; there’s no reason to think that it can’t lead to a quite benign resolution of the circumstances we’re now in. But that’s terribly complicated, more by politics, property rights, infrastructure, and those kinds of issues than by anything inherent in this imbalance problem.