Saturday, February 19, 2011

Global Savings Glut Redux

. Saturday, February 19, 2011

Bernanke is back with the global savings glut argument, this time at a Group of 20 meeting in Paris.
Although Bernanke phrased his argument about the root causes of the crisis in cautious, technical language, it boils down to this: The trillions of dollars that global investors poured into the United States from 2003 to 2007 fueled a gigantic housing and mortgage bubble. When it popped, the financial system imploded and the country fell into a deep recession. Bernanke argued that if that money had been channeled into building new factories and roads in the United States, instead of ever-higher property values, it might have had long-term payoffs and global investors and ordinary Americans might have been better off.
Ah, yes. But why wasn't it channeled into factories?
Bernanke drew an explicit parallel between the crisis in the United States in 2007 and that in East Asia a decade earlier. Like the United States, Thailand,Singapore and other rising Asian nations had taken on a gush of international capital (though in that case it was because investors hoped to profit from those economies' extraordinary growth, not because they were viewed as a safe harbor for savings).
Wasn't Asia also a real estate bubble?
[Bernanke] again made the case that countries such as China that deliberately depress the value of their currencies are endangering the world economy by making it more prone to financial crises.
If everyone agrees that the RMB has been undervalued, wouldn't that imply that the dollar has been overvalued? So why did all that capital "gush" into real estate rather than factories?

2 comments:

Kindred Winecoff said...

IIRC, this was one of my objections to a project you were working on. I don't recall if you had an answer. Do you, or is this not a rhetorical question?

Kindred Winecoff said...

Oh, n/m. The tradables argument. Got it.

Global Savings Glut Redux
 

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