"a theory espoused by Ben Bernanke, former Federal Reserve governor, is gaining popularity. According to this view, the US current account deficit, rather than being the result of US consumer behaviour, can be explained by a global savings glut."
Lex: Global savings
Published: July 8 2005 15:32 | Last updated: July 8 2005 15:32
As ministers discussing climate change at the G8 summit are all too aware, the US is often reluctant to admit to its role in global problems.
At least President George W.Bush now accepts that humans contribute to global warming. Unfortunately, there has not been similar progress in explaining savings imbalances.
Indeed, a theory espoused by Ben Bernanke, former Federal Reserve governor, is gaining popularity. According to this view, the US current account deficit, rather than being the result of US consumer behaviour, can be explained by a global savings glut. The notion that, in aggregate, the world is saving too much is difficult to reconcile with the facts. Saving has increased in the last two years. International Monetary Fund data for 2004 put the global saving rate at 24.9 per cent of gross domestic product, slightly above the long-term average. Investment, however, has also risen and accounted for 24.6 per cent of global GDP last year.
The problem is not the level of saving but its distribution.
Capital spreading more evenly, he means
There is an excess of savings predominantly in Asia, but also Europe which is reflected in current account surpluses with the savings-deficient US. Mr Bernanke's view is partly correct; some surplus nations need to save less and consume more.
Wrong. Countries with lousy finacial policies have to attract capital from those countries where there is overcapacity of everything including capital ovecapacity
But placing the blame elsewhere ignores the need for the US to rein in its excessive consumption and attendant property bubble. The delayed, but inevitable, current account adjustment will be far more disruptive if the US is in denial. |
