The world is trapped in a global savings glut. It is both the source of our economic woes and an obstacle to the task of pulling ourselves out of the ditch. Worse yet, the glut's continued existence will feed a succession of asset bubbles until we confront it, head on, and find ways to soak up the excess.If you've ever considered going into banking, perhaps it's not too late. Real estate agents may again be raking in the dough. And Bubble Meter may continue to have plenty to blog about.
Yes, we can blame the City and Wall Street for turning the global savings glut into fissile material. But that's like saying, "hyenas do what hyenas do". Given extraordinarily lax regulation and a flood of money to play with, bankers were just acting according to their incentive schemes. They merely took advantage of the opportunities the glut presented. The real culprits are thrifty Germans, and state-owned enterprises in China – along with governments of other countries, of course, turning a blind eye to the escalating problems. ...
What makes this a global glut is that the world as a whole is saving more than can be profitably invested. The corollary is that, eventually, those funds will earn less than nothing. And through financial engineering, those losses are now distributed around the world. ...
Until the savings glut is vanquished, asset bubbles and instability will be fed, exacerbating income inequality and favouring wealthy bankers and the Chinese elite. It will continue drawing resources away from productive sectors of the economy and channelling them into high-paying but socially useless financial engineering – or into yet more excess capacity.
Monday, December 07, 2009
More bubbles to come
Robin Wells, a former Princeton University economics professor and current wife of Paul Krugman, says we will continue having financial bubbles: