Of the four biggest economies – the US, China, Japan and Germany – the US is the oddball. The only debtor in the bunch. The other three run huge surpluses each and every year.

In fact, apart from size, you could argue that the US has more in common with Greece than it does with the other major economic powers. Like Greece it can’t meet domestic demand for goods and services from its own factories and companies.

And, of course, we can’t forget this: The US is dependent on other countries to finance their annual deficits, just like Greece is.

Greece has depended on European banks, the US on China. In the excerpt below, Mr. Martin Wolf from the Financial Times argues that it’s the debtor, the US, that rules its relationship with China: “If [China] stops buying [US bonds], it imposes a shock on itself.”

Wolf is saying nothing new here. But he says the same is true about Greece. Little Greece has the ability “to inflict a great deal of damage on everybody.”

The US and Greece are both victims of global imbalances in trade. Asia and China are way overbuilt. To prosper their factories need markets like the US’s. Germany is also overbuilt and needs markets like Greece’s to prosper.

From the Financial Times…

Three of the world’s four largest economies — China, Germany and Japan — are creditors: they run current account surpluses, in good and in bad times. They believe they are entitled to lecture debtors on their follies. China, an ascendant superpower, enjoys berating the U.S. for its imprudence. Japan, a U.S. ally, is more discreet. Germany’s ambitions are closer to home. It wishes to turn its euro zone partners into good Germans, instead.

Yet creditors are vulnerable. Their economies have a capacity to supply goods and services that borrowers desire far larger than their own residents will ever buy. Deficit economies are mirror images: their capacity to supply such goods and services falls short of their demand. These surpluses and deficits are embedded in both kinds of economy.

Within creditor countries, the producers of tradeable goods and services are a powerful lobby for the supply of credit to debtors. Private funding will halt once financiers realize how bad their lending has been. Policy makers are then caught between throwing good money after bad or tolerating brutal adjustment, as their markets disappear. In punishing profligate borrowers, they also damage their own citizens.

This story lies behind what is happening to the world. It is behind the agenda of the European summit of last week and that of the Group of 20 leading economies this weekend. As Mervyn King, governor of the Bank of England, stated in a recent speech, it is the story behind all the crises since 2007: “Persistent trade surpluses in some countries and deficits in others did not reflect a flow of capital to countries with profitable investment opportunities, but to countries that borrowed to finance consumption or had lost competitiveness. The result was unsustainably high levels of consumption (whether public or private) in the U.S., UK and a range of other advanced economies and unsustainably low levels of consumption in China and other economies in Asia, and some advanced economies with persistent trade surpluses, such as Germany and Japan.” In brief: everybody helped make a mess and everybody has to play their part in fixing it.

Greece is taking the brunt of the world’s anger right now. But one of these days it will be the US, even though as Wolf puts it, it’s “a trap of creditor countries’ own making.”

Good Trading

Erik