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:
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Real estate agents just love all the clap-traps the govt is putting together to create a new bubble. After all, that's the only thing the tax credit was about: create sales volume to line their pockets.
ReplyDeleteWe as a populace and our government have learned nothing.
This guy believes "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."
ReplyDeleteHe has evidently never heard of the long-time international central banking families who own most of the infrastructure of the planet. Probably the same people who paid the writer to suggest it was someone else to blame.
Savings glut
ReplyDeleteHow is this not an indictment against those that have been saving judiciously during the last two decades?
Wow, so the bubbles were generated by all you stupid savers who didn't buy mcmansions and big screen tvs. Shame on you!!
Here is the anti-Bubble that's waiting to happen, which will result in a Bubble for anyone already conveniently invested in carbon trading and green energy -- such as Al Gore... and private wealth interests that coordinated this crap.
ReplyDeletehttp://online.wsj.com/article/SB126013960013179181.html?mod=WSJ_hpp_LEFTTopStories
Please read the source article before you comment. It makes you look like an ignoramous when you allow the biased contributors of this blog to spoon-feed you the cherry-picked passages that best fit their naive worldview.
ReplyDeleteHere is the anti-Bubble that's waiting to happen, which will result in a Bubble for anyone already conveniently invested in carbon trading and green energy
ReplyDeleteI agree, the free market is not the answer to reversing the unsustainable climate devastation. Scientists sounded the alarm decades ago, now it's too late for reduction to effectively reverse course. Reduction can only buy some time for science and technological innovation to find a solution. Cap-and-Trade is the next credit default swap.
Tuskenrayder is right.
ReplyDeleteI can say with some certainty that there is indeed too much money saved when interest rates can go negative. That's just plain irrational.
It doesn't mean that the US has too much savings... on the contrary, the country is doing the rational thing; when someone pays you money to borrow, you do it. The same way that home buyers were acting rationally in the short-run.
Countries like China are manipulating their economies by holding far too much in currency reserves and not enough in actual spending.
It doesn't justify us spending like drunken sailors, but it does explain WHY we can continue to do so without the normal ill effects. I just fear the hangover from this episode.
Chuck
I agree with "Ponzi." I would add that regulation (as Wells wrote), plays a role as well.
ReplyDeleteIf the OTC derivative market wasn't opaque, we may not had nearly the bubble we did. The theory of economists (bubbles don't happen because the market is always right) would have been true(r). The risk buried within complicated bonds would have been more visible.
Regulated markets would make them more predictable, allowing investors to make more informed choices.
I'm not talking about central-planning. Just helping buyers have the same information which buyers do. That kind of transparency. Not a one-sided relationship, like when you buy a used car and the seller knows it's a lemon.
Transparency like that is what has attracted foreign capital. I fear what will happen is, if we become more like less-developed nations (corrupt, "rigged," markets that resemble casinos) global wealth will be invested in less-developed nations.
We are giving away an opportunity to put the world's money to our own use, and continue to lead the world economically. (Instead, today the only option is to put that money to the use of the top-of-food-chain players at Goldman, JPMorgan, Citibank, et. al. It's their "rigged" game that benefits.).
they definitely keep it interesting. All we can do is go with the flow and identify opportunities.
ReplyDelete