Is Decoupling Possible?  The dream rebalancing scenario, in
which adjustment of the world’s imbalances occurs without fiscal
responsibility returning to America, relies upon “decoupling”.
A rejuvenated Europe, stripped of structural rigidities, and a
resurgent Japan equipped with a newly reformed financial system,
pick up growth, and begin running bigger trade deficits. The
U.S. moves to a glide path of sustainable growth with shrinking
trade deficits. I remember this scenario being outlined when I
was in the Government –already over five years ago now. It’s
similar to rosy scenarios of global rebalancing circulated these
days.  The newly released IMF “Financial Market Update”
(December 2006) includes two interesting graphs. The first shows
current forecasts for output in key regions.   Figure 1: Source:
IMF “Financial Market Update” (December 2006).  What is more
interesting, in some respects, is the distribution of the
forecasts. Figure 2 demonstrates that the bimodal 2007 US growth
forecast distribution o