Hazardous Inertia of Imbalances in the US and World Economy

This paper revisits the economic expansion in the US since the early 1990s by looking at the structure of aggregate demand and the financial balances of the main sectors with the help of a consistent set of Social Accounting Matrices, Flow of Funds and Matrices of Stock Balances. It highlights the by now obvious fact that the US expansion was allowed to continue by the exacerbation of unprecedented global financial imbalances. By exploring econometrically the patterns of aggregate demand, it concludes that for the US economy to keep growing at such a pace, continuing asset appreciation (real estate and equities) and capital inflows from abroad are required. Such a path is precarious, and potentially hazardous for the US and the world economy because it relies on ever-accumulating debts. There seem not to exist marketdriven alternatives which would not involve serious macro-financial crises. Unless a congenial, policy-coordinated solution is found, the inertia may prevail? until it lasts.