Insolvent - who's insolvent?
In 2000, the IMF added up the reported trade balances for every country in the world and discovered that total world imports were $172 billion greater than total exports. Discounting the prospect that aliens are using their unfair price advantage (presumably they are not subject to payroll taxes) to steal our jobs, the idea that the world as a whole could run a trade deficit is of course absurd. However, the idea is resurfacing in much recent comment about the world financial crisis. Even the excellent Martin Wolf is talking about "a growing crisis of insolvency" and this is becoming a common theme: we thought we had an illiquidity problem, but now we find it's an insolvency problem. Well, it's not. Insolvency is the inability to pay debts as they fall due. The total amount of debt in the world is zero - every debt is owed by one party to another party, in equal amounts. Just like the total trade balance of the world is zero, the world does not have any debt and there...