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Not a Keynesian Moment?

Avinash Persaud (“A Keynesian Moment? Hardly”, EPW, 27 November 2010) bases himself on two premises: (a) precautionary savings are not at too high a level to create unemployment equilibrium; and (b) the world’s reserve currency is “issued by a country in permanent deficit” (p 10). Because of this there is an accumulation of US dollars in several Asian countries which enjoy surpluses. There is thus a seeming glut of savings in the rest of the world. As a result, the deficit economy is under pressure to adjust. He believes that in this situation “every country is incentivised to come up with policies that promote balanced growth except for one country” (p 11), i e, the country issuing the reserve currency. He is, in other words, suggesting that the Chinese yuan (renminbi) should appreciate sufficiently to prevent a balance of payments surplus.

Leaving the issue of revaluation of the renminbi on the one side, the questions that arise in this context are the following:

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