Savings Glut

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Savings glut
Chloe Curtis
Mind Map by Chloe Curtis, updated more than 1 year ago
Chloe Curtis
Created by Chloe Curtis about 8 years ago
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Resource summary

Savings Glut
  1. WHERE?
    1. China
      1. Attractive culprit-> lay blame on currency management policies
        1. Roubini
          1. US borrowing problem reached 10% of GDP before collapse
        2. 0.0042 cc per person vs 4
          1. Gross saving 50% of GDP
          2. Oil
            1. Bloated revenues
              1. Tend to have fixed/managed ER thus increased CB reserves
              2. US
                1. US fiscal prolific and a consumption binge
                2. Asian
                  1. Build international reserves following 1990
                3. EVALUATION
                  1. US CA deft autocorrecting
                    1. Decline in private consumption vs $
                    2. Epicentre became safe haven
                      1. US still demander of last resort
                      2. Stiglitz
                        1. Able to import capital on better terms.
                        2. Greenspan
                          1. Bond market conundrum-> disconnect between LR IR and fixed rate mortgages rates.
                            1. Search for yield-> FM-> implicit guarantee by the Treasury.
                            2. Turner Review
                              1. Foreign ownership of UST risen from 20% in 1994 to 57% in 2007.
                                1. Risk free rates at historically low levels.
                                2. Reinhart
                                  1. Capital flow bonanza
                                    1. Rising asset prices, slow real economic activity, large CA deficits and sustained debt buildups precursors
                                      1. Europe-> Sudden stops and tailspin.
                                      2. Obstfled & Rogoff
                                        1. US soaking up more than 2 out of every 3 of these saved dollars in 2004-6.
                                        2. Krugman
                                          1. Wile E Coyote moment unsustainability of US CA $ would collapse.
                                            1. Hard to imagine crisis without international monetary movements-> US and Europe.
                                              1. Ocean of money-> markets will always self-correct.
                                              2. My View
                                                1. Amplifying mechanism rather than a trigger
                                                  1. Cushions in FE eroded and fiscal finances deteriorate
                                                    1. Productive investment opportunity
                                                      1. Root of all evil flood of foreign money not propensity of US to over consume
                                                        1. Not necessarily excess savings-> Fiat money
                                                        2. Bernanke
                                                          1. Global savings glut 2005
                                                            1. Reinforcing-> pushed up dollar and deficit
                                                            2. Loanable funds theory of interest
                                                              1. Explained Greenspans conundrum
                                                                1. Weaker exports and deficit
                                                                  1. Innocent bystander
                                                                  2. Summers
                                                                    1. Secular stagnation
                                                                      1. Excess savings
                                                                      2. Weaker investment and consumption in individual countries
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