In March, Rob Atkinson pointed out that the housing bubble resulted not so much in wealth destruction so as in wealth transfer -- from homeowners to buyers, which also means from the older and wealthier to the younger and less wealthy. Perhaps the broader U.S. debt binge also accelerated wealth transfer from west to east, from the developed world to China, India and other emerging manufacturing centers.
Trade surplus countries were lending to U.S. consumers in order to sell their goods to them. Left unchecked, that's a road to ruin, akin to a nineteenth century London clothier selling on credit to the hopelessly indebted gentry and aristocracy who populate Victorian novels. But the trend was checked -- violently -- and early enough that few see any serious risk that the U.S. Treasury will not be able to meet its obligations.
The U.S. will be paying this debt off for a long time. Household, business and government deleveraging will slow growth. Looking backward, higher interest rates, checking voracious consumerism and reducing U.S. trade deficits, might have led to more gradual and sustainable growth in the trade surplus countries as well as in the U.S.
But still...the turbo-charge to growth in China and India and other emerging manufacturing centers may have been valuable. China at least is now in a position to develop its own consumer market. Painful and risk-laden as the rebalancing of world trade may be, the go-go years' boost to industry and expectations may still prove to have been a net positive for the high-growth, trade surplus emerging economies.