The global saving glut and the us current account deficit pdf

The current account deficit, some say, is financed by u. Remarks at the sandridge lecture, virginia association of economics, richmond, virginia by ben bernanke, board of governors of the federal reserve system u. I argued that the flow of global saving into the united states helped to. Now i will turn to the main topic of my discussion, the low level of global real interest rates, an important and distinguishing feature of the current global economic environment. A shift in the saving curve of the country in question in other words raises its current surplus, raises correspondingly the current deficit of the rest of the world, and lowers interest rates everywhere. The global saving glut explanation, most closely associated with bernanke 2005, views excess saving from asian emerging market countries, driven by rising savings and collapsing investment in the aftermath of the financial crisis, as the cause of the u. This report discusses the concern about the size of the current u. May 11, 2016 the global savings glut by lpl financial. Economic equilibrium is a global, not national concept. Bernanke has often used this reasoning to explain the united states massive current account deficit. Current account deficit, offered a novel explanation for the rapid rise of the u. In 2005 the governor benanke gave a speech entitled, the global savings glut and the u.

Easy money global liquidity and its impact on new zealand. The increase in the euroarea current account in part reflects sharp reversals in the current account deficits of greece, portugal, spain, and irelandall countries that had witnessed large increases in their deficits during the global saving glut period prior to the crisis, in a pattern similar to that experienced by the united states. The us current account and the dollar, nber working paper. Bernankes global savings glut council on foreign relations. Global saving glut also global savings glut, gsg, cash hoarding, dead cash, dead money, glut of excess intended saving, shortfall of investment intentions, describes a situation in which desired saving exceeds desired investment. According to taylor, there was a gap of saving over investment in the world outside the united states during 20022004, and this may be the source of the term saving glut. The global saving glut and the us current account deficit econpapers. Exchange rates go up and down, capital flows in and out, and saving doesnt always equal investment. Us current account deficit and exchange rate tax core. Corresponding to the increased current account surplus in the emes, as a result of the rise in the desired savings at their base income, base interest rate and base exchange rate, there is an exactly equivalent increase in the current account deficit in the us, again at unchanged base values of the three variables.

Global savings glut was first raised as a concept by ben bernanke in 2005 to account for the u. Output growth has returned to healthy levels, the labor market is firming, and inflation appears to be well controlled. By 2005 ben bernanke, chairman of the federal reserve, the central bank of the united states, expressed concern about the significant increase in the global supply of. Louis, missouri by ben bernanke, board of governors of the federal reserve system u. By 2005 ben bernanke, chairman of the federal reserve, the central bank of the united states, expressed concern about the significant increase in the global supply. This rapidly rising savings glut has been a principal source of increased global liquidity.

How demographic change will affect savings, growth and. Figure 1 plots the evolution of the corporate saving glut for the united states. Federal reserve board the low level of global real. In the united states, the yield on 10year treasury bonds is near alltime lows, with the same being true in the euro area, the united kingdom, and japan.

Ben bernanke, chairman of the federal reserve board, has been arguing that three observed phenomena in the world economy in the decade after 1996, viz. In the speech, he argued that the major cause of the u. The global saving glut and the us current account deficit, 2004. Ben bernanke looks at whether the global savings glut is to blame for low interest rates. Aug 14, 2017 but it is not americas current account deficit that looks scary now that dubious honour goes to some emerging market countries and oil producers such as saudi arabia. Apr 01, 2015 ben bernanke looks at whether the global savings glut is to blame for low interest rates. He argued that the rapid buildup of savings in emerging market em economies after a spate of financial crises in the 1990s, a sharp rise in the price of oil in the early 2000s and an upswing in household and corporate savings in china caused a shift outward in the global savings supply curve. By 2005 ben bernanke, chairman of the federal reserve, the central bank of the united states, expressed concern about the significant.

Also compares and analyzes the conventional view with the global saving glut view. Federal reserve board the low level of global real interest. But the united states was saving less than it was investing during this period. From global savings glut to financing infrastructure. Then he 2007a, 2007b claimed that the global saving glut played. It is a common mistake to treat international capital flows as though they are passively responding to what is happening in the current account. Jul 10, 2015 bernanke 2005 raised a concept of global saving glut and initially used it to account for the u. The corporate saving glut in the aftermath of the global. This paper investigates the emerging global landscape for publicprivate coinvestments in. And, at least until recently, there was general agreement among. December 11, 2005 that the united states, with a current account deficit equivalent to more than 6 percent of its gross domestic product, is living beyond its means is not in dispute. Sandridge lecture, virginia association of economics, mar. No 77, speech from board of governors of the federal reserve system u.

A global saving glut also global savings glut, gsg, cash hoarding, dead cash, dead money, glut of excess intended saving, or shortfall of investment intentions is a situation in which desired saving exceeds desired investment. The theory of the global savings glut for some time now, mr. Debunking the global savings glut theory the globalist. Global imbalances, saving glut, money, credit, capital flows, current account, interest rates, financial crisis. Bernanke 2005 raised a concept of global saving glut and initially used it to account for the u. It has become commonplace to assert that currentaccount imbalances were a key factor in stoking subprime lending in the us. Do you think that gy can explain the us currentaccount deficit. The global saving glut and the us current account deficit remarks by mr ben s bernanke, member of the board of governors of the us federal reserve system, at the sandridge lecture, virginia association of economics, richmond, virginia, 10 march 2005.

Many people think of saving money as a best practice when it comes to managing their finances, but if everyone in an economy or even just a single saver that controls much of the wealth saves at the same time, spending is likely to decline, leading to slower nearterm economic growth. Current account deficit, the sandridge lecture, virginia association of economics, mar. Four years ago to the day, ben bernanke famously identified a global saving glut as the cause of a mammoth u. The absolute level of east asian current account surpluses in nominal us dollar terms. Jun 22, 2009 the strongest evidence in favor of the global saving glut explanation, so construed, is that interest rates seemed unnaturally low at roughly the same time the us current account deficit was large. That leaves low us saving, low foreign investment, and high foreign saving to check on. Dec 20, 2011 it has become commonplace to assert that currentaccount imbalances were a key factor in stoking subprime lending in the us. The counterpart to the increase in the us current account deficit has been a rise in the current account surplus of the emerging world. The theory has also been used to describe the state of china, japan and korea in recent years. The impact of global value chain participation on current account balances a global perspective 68 articles 1 the impact of global value chain participation on current account balances a global perspective participating in global value chains may improve an economys competitiveness and thereby raise its current account balance. The unsustainable us current account position revisited, 2004. Do you think that gy can explain the us current account deficit. Mar 10, 2009 four years ago to the day, ben bernanke famously identified a global saving glut as the cause of a mammoth u. For example, about a quarter of the large us current account deficit during the.

According to his analysis, the flow of funds associated with the bg. Current account deficit march 2007 international finance is a fascinating but challenging subject with many moving and intertwined parts. Chinn university of wisconsin and nber presentation at nabe panel international capital flows assa, chicago, january 6, 2007 anticipating the answers maybe better investment drought maybe too obvious a question. Bernanke and others published the global saving glut and the u. And is it the cause of the us current account deficit. This deficit went from 120 billion dollars in 1996, equal to 1. Global savings glut, the by michael steinberger nyt 505 words published. In theory, this effect depends on a the persistence of the changes in government spending and b the size of the economy. The global saving glut and the us current account deficit.

Some countries like china, he argues, save more than they invest, causing them to have a current account surplus and a glut of savings that they need to lend abroad to savings deficient countries like the united states. Bob kostakopoulos pace university lubin school of business dr. Jul 12, 2012 bernanke has often used this reasoning to explain the united states massive current account deficit. A current account deficit is exactly equal to a capital account surplus, up to unavoidable errors and omissions in the data. The advent of investment platforms prepared by rabah arezki, patrick bolton, sanjay peters, frederic samama, and joseph stiglitz authorized for distribution by prakash loungani february 2016. Low us saving could be due to bursts of government spending. Global saving glut, monetary policy, and housing bubble. A global saving glut also gsg, cash hoarding, dead cash, dead money, glut of excess intended saving, or shortfall of investment intentions is a situation in which desired saving exceeds desired investment.

What is remarkable is that while during the us boom the current account deficit of the us. The speech, titled the global saving glut and the u. Current account balances, financial development and institutions. The global savings glut is reviving after a period of hibernation following the global financial crisis gfc.