Asian Officials Push Back Against Savings Glut Theory
“The crisis originated from Wall Street and many indisputable facts have established that micro factors had played an overwhelmingly important role in causing this crisis. People outside China need a better insight into the high savings rate in China.”
-Chinese central bank governor Zhou Xiaochuan
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Gee, why do you think they would be upset about hare-brained rationales that duck blame for the crisis?
Bernanke’s 2005 global savings glut nonsense was an ill-conceived attempt to shift responsibility for U.S. policy mistakes to Asia. Of course, China’s trade surpluses had an impact on the global economy — but it can hardly be blamed for Easy Al’s ultra-low rates.
WSJ:
“Asian officials and scholars are pushing back against the notion that their countries’ high savings helped cause the financial crisis by flooding the world with money, arguing that lax U.S. financial regulation bears the brunt of the blame.
“Asians financed cheap consumption in the rest of the world, this is what they say. This is something I just cannot understand,” Supachai Panitchpakdi, the head of the United Nations Conference on Trade and Development, and a former Thai government official, told a conference Friday. “This is another theory we have to debunk. Asians have not been over-saving and under-consuming.”
The real difference between Asians and Americans, Mr. Supachai argued, is that American consumers borrowed heavily to finance their spending while those in Asian nations mostly didn’t. He said that consumption levels in Asia are “normal,” averaging about 40% of gross domestic product. He acknowledged that household consumption in China is relatively low, at 36% of GDP. But he said that’s because growth in investment and exports have been very strong, not because consumption has been weak.
To review: Much of the oast decades growth int he United States was fueled by credit, leverage, and borrowed money. The Asians growth has been powered by manufacturing, production and exports.
And we are lecturing them to spend more and save less — you know, behave like us – more irresponsibly.
WTF is THAT about? This is end of empire type stupidity . . .
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Source:
Asian Officials Push Back Against Savings Glut Theory
ANDREW BATSON
WSJ, JULY 3, 2009, 11:42 A.M.
http://online.wsj.com/article/SB124661698321691669.html
July 4th, 2009 at 12:18 pm
This logic will not be going away any time soon.
The US is going to have to find some bunch to screw in order to get out of its mess. Here are the choices:
1. The pensions of Americans.
2. The Japanese (1 trillion in reserves?)
3. The Chinese (2 trillion in reserves?)
4. The oil producers (some kind of war?)
Something tells me point number 1 is the least palatable and they will be doing more and more foreign name calling.
July 4th, 2009 at 12:19 pm
Nice timing, I just finished reading this:
http://www.debtdeflation.com/blogs/2009/07/04/debtwatch-36-july-2009-its-the-deleveraging-stupid/
a few times over.
I think O’s economic advisors will be saying next year – “WTF I thought Green Shoots was a success.”
July 4th, 2009 at 12:20 pm
The empire is already dead – we simply are in denial.
July 4th, 2009 at 12:25 pm
It’s the Kool-aid.
July 4th, 2009 at 12:26 pm
BR,
to your Q: , you know that Debt leads one to a state of being In Dependence.
here, it should be noted that our ‘Dollar’, yon’ Paperback, is, nothing but, an evidence of Debt.
that TPTB/ our friends the ‘Bankers’ are Promoted, yet more, Debt, should be of little surprise.
It allows Peep to weld their own Manacles, without them, ever, learning how to light a Torch.
It’s a Perfect World for the few, that are, of course, by their nature, sick & twisted, among us.
As always, there’s a grand Gulf between Independence and (being) In Dependence.
http://www.thefreedictionary.com/Independence
the archaic definition is most telling..
~
http://www.thefreedictionary.com/dependence
July 4th, 2009 at 12:29 pm
It couldn’t possibly have been OUR fault!
July 4th, 2009 at 12:30 pm
Who put a burr under BR’s saddle this morning? It’s a holiday. Fire up the BBQ, break out the cold drinks, and dish out the red, white and blue ice cream, Barry!
July 4th, 2009 at 12:36 pm
above, syntax error– Promoted, should have been Promoting –
f411,
be useful, 2x-check on whether your State of Domicile will accept their own IOUs for Tax Payments.
http://legal-dictionary.thefreedictionary.com/domicile
July 4th, 2009 at 12:38 pm
the savings ‘glut’ has about as much to do with wall streetsters and banksters fraud as did the CRA. its just another way to duck responsibility for their culpability for this mess. they gamed the economy so they could make billions in profit on their loans. they pushed incomes lower and lower driving people to take loans to make up for that . now that that marketing method is dead, they are now gaming commodities to make up for their losses and drive profits . but we are still stuck with lower (and collapsing) incomes, and fewer and fewer jobs (closing in on the number of jobs from 1999 with a larger population ). is it Asias fault that they were source of the money? no! but they also knew that if they quit being that source, their export based economies wouldn’t survive.
July 4th, 2009 at 12:44 pm
Unconscionable B.S. They try to wrap this ridiculous premise up into “complicated” economic-talk to make it sound like it actually has some validity. We common folk just don’t understand these macroeconomic factors, you know. I’ve been hearing this crap for decades now, as have all the other regular folk, and I bought off on it when I was younger and busy raising a family and serving my country. Figured there was something I was missing since it didn’t sound commonsensical. They must know some things that I don’t know. And that’s what most folks have thought too, although it created a kind of cognitive dissonance.
Things like:
- deficits don’t matter
- we’ll grow out of our debt
- we can have a service economy that will prosper
- savings don’t matter because we’ve got asset appreciation to reap (I never bought that one)
- we could never have another depression because things are different
- we could never be another Japan, because, well, we’re America, and we’re different
and on and on
But I think that more and more people are waking up to the fact that they’re all full of crap, they lie, and common sense really should come into play. Piling on more debt won’t fix our debt problems, etc. They’re losing more credibility as this thing rolls on. When enough people are in desperate straits, with no job prospects, watch out.
July 4th, 2009 at 12:47 pm
What is more troubling is the notion that Bernanke, Summers, and Geithner actually believe the savings glut is a real phenomenon, and we have put them in charge.
July 4th, 2009 at 1:04 pm
Even if it was true and China started to consume more, it does not take away the fact that they would end up burning oil that we desperately need to maintain our own growth and infrastructure. The global economy has been built to serve the Western World, not for emerging markets to enrich themselves.
We grew to unsustainable levels and now we’re going to pay dearly for it. Globally.
July 4th, 2009 at 1:17 pm
@BR, maybe you have been living under a rock, the US political system has been telling the rest of the world what to do for a very long time, financially, politically and militarily. My favorite one is Bush trying to spread democracy (US style) after the banana republic style 2000 election. What kind of country wants that kind of democracy?
July 4th, 2009 at 1:34 pm
BR Says-
“Much of the oast decades growth int he United States was fueled by credit, leverage, and borrowed money. The Asians growth has been powered by manufacturing, production and exports.”
and thus our dilemma – in the end it all comes down to wages and cost of production- the capitalists will bag their own country if necessary to make the extra margin- not saying it’s wrong per se- but- ultimately people need jobs to support themselves- standard of living will ultimately need to go down
July 4th, 2009 at 1:35 pm
Once people buy into a delusion and base a large portion of their lives upon that delusion it is hard to let go. Most of the world did not buy into the delusion of “load up on debt, don’t worry we will grow out of the burden of funding it!” The fact is savings -> investment -> production -> consumption; it’s not the other way around.
Another delusion that has become central to the American Myth is that savings = a stock portfolio, hogwash. I used to believe this as well. Savings is not investing or speculating. Investment comes after savings (i.e. liquid, cash, etc.); speculation, that comes way after investing and saving, if at all.
Regards,
TDL
July 4th, 2009 at 1:38 pm
OK, once we stop yelling and actually start thinking perhaps that savings glut theory isn’t so bad.
Let’s think back to the Asian financial crisis of the late 90s. The emerging market countries were faced by huge outflows of foreign capital, so they all decided to that to avoid this they needed to maintain large foreign currency reserves just in case the fickle foreign capital decided to all head for the exit again.
Now, the next question was where would all these reserves be parked. They didn’t want to park it in their own currency because they didn’t want their own currency to appreciate. (As a side bar, I find it hilarious how we fret so much about our dollar going down while we never even stop to think about the value of a devalued currency in the midst of a global recession. On the other hand our Asian trading partners have held down their own currencies for years, which I believe was the GOVERNMENT ACTION that caused this crisis.) So they parked it in what they believed to be the safest asset class out there, US Treasuries. The mass purchases of US treasuries by GOVERNMENTS held down rates through out the period of 2000-present. This enabled the huge boom in borrowing this past decade. The reason I capitalize GOVERNMENT is because I don’t think believing in this theory means that you don’t think governments are to blame. It was just mostly the actions of foreign GOVERNMENTS. These weren’t the savings of private individuals in Asia pouring money into US Treasuries, it was their GOVERNMENTS doing these actions.
I am also going to come to the defense of Greenspan in a little bit. What is the mandate of the Federal Reserve? To maintain price stability and full employment. As Barry has pointed out, the recovery after the 2001-2002 recession was marked by very low employment gains. I know I am going to catch a lot of flack here for saying this, but this was mostly due to Bush’s refusal to do a fiscal spending stimulus. So, as Paul Krugman has noted, this left only one way out for the recovery and that was for the Fed to hold down rates for a long, long time. And Allan Greenspan did just that. But its important to note that the Fed only has the power to hold down short term interest rates. Long term rates CAN go up despite 1% Fed rate policy. But they didn’t go up, mostly because of the huge inflow of capital into US Treasuries from Asian governments.
This is my story as to how the Asian governments caused this crisis. Is it possible that with better regulation and a culture of skepticism to free market capitalism we could have handled this better? Maybe. But I still think the ultra-low LONG-TERM rates caused by huge inflows from foreign GOVERNMENTS would cause a housing bubble to form.
July 4th, 2009 at 1:38 pm
st,
Democracy, US style, has already spread through out the world (think about what the EU actual is for instance.) That is one of the problems with the world, the over riding belief in democracy. It’s time “we”, as Americans start to question some of our long held beliefs.
Regards,
TDL
July 4th, 2009 at 1:42 pm
TDL,
nicely put.
IOW, Savings is the E in ALE (A=L+E), not the e in Beer.
E=A-L, as well, though, more importantly.
E, and only E, leads to I (as in Investment, and, maybe, appropriately, for this Day, Independence)
July 4th, 2009 at 1:55 pm
But what if E -> I -> US Treasuries? How does that lead to growth and full employment unless government spends?
July 4th, 2009 at 1:56 pm
Or to put it another way, if I -> private bonds or private equity then yea private enterprise has access to capital and can produce growth and full employment.
But what if I -> US debt? Then the only way to achieve growth then is for the the US government to spend via the stimulus.
July 4th, 2009 at 2:02 pm
999,
note, here in the NAU, there is no, net +E. thereby, there is no +I.
you are speaking a hypothetical that bears no relation to any Balance Sheet you can set a Level on.
July 4th, 2009 at 2:03 pm
Professor Pettis has explained this many times, but the bottom line is that the culpability in this is equal. One country cannot run a current account deficit without another running a surplus. One running a surplus cannot do so without another running a deficit. It is a perfect catch 22.
July 4th, 2009 at 2:20 pm
I find nothing wrong if one country has an account surplus and another a deficit. I find something wrong when the country with the surplus takes its surplus and uses it to finance the deficit of its main trading partner so as to maintain and unmaintainable trading relationship.
And again this was not the decision of private individuals with high savings to buy US Treasuries, it was the decision of their governments who wanted to hold down the value of their own currencies and maintain a sorta mercantilist economic policy.
July 4th, 2009 at 3:28 pm
It does seem logical to me that Greenspan’s conundrum of low long-term rates was caused by China’s new found dollar wealth and high savings rate. But they were just doing the smart thing, saving and investing, while we were doing the stupid thing – borrowing to dangerous levels. The whole emphasis in our economy has been on spurring consumption since the GD. That reached a crescendo in the late ‘90s, followed by a final orgasmic housing bubble in the 2000’s.
Blaming China for our addiction to consumption is like blaming Afghan farmer’s for becoming a heroin addict. They only grow it because we buy it.
China bought Ts to make a return on their dollars, not to create an unsustainable debt bubble.
As for consumption in China, I estimate about 98% of the people in cities there live in apartments and condos. They don’t have a need to buy all the stuff we do – no lawn to take care of; no 2 or 3 car garage to fill with riding mowers, tools and equipment, two cars, and perhaps a boat; and no deck or patio to fill with outdoor furniture and barbecue grills.
Chinese women love to shop, but it is mostly for clothes. And eating out is the national pastime (besides mahjong, and video games for the youngsters), but people can only eat so much.
In short, they don’t have the storage space we do to fill up with stuff, and no rental storage units for the overflow. So how much junk can they buy compared to us? Those little apartments can only hold so much stuff. Remember what George Carlin said, “Our house is the place we keep all our stuff while we go out and buy more stuff”. So no house means less stuff, and less stuff means less consumption.
Bottom line: they will never match our level of conspicuous, unnecessary, and gluttonous consumption.
The economic growth of the last 40 years was based increasingly on unnecessary consumption and increasingly unsustainable debt. As a result we bankrupted ourselves and enriched our OPEC enemies making them more powerful opponents.
It is time we return to sustainable growth, consumption, and credit. The plutocrats won’t make as many billions as before, but they don’t need to be that greedy anyway; after all how many billions does one family need?
July 4th, 2009 at 3:29 pm
Whatever. I’m watching the Sox and having a clambake here on the Cape. Suckaz.
July 4th, 2009 at 4:38 pm
Barry, you better be careful…you are beginning to sound more like B in T daily…(except for the 80% long in equities at this point in time…BinT is still in short term callable CD’s…)
Blaming Asians…I don’t know…kind of like blaming Galileo or witches or…
Found out bats are in a white-nose epidemic…our cave was closed….NPS is recommending all eastern parks with bats not allow people for the time being…
http://www.ens-newswire.com/ens/jan2008/2008-01-31-094.asp
July 4th, 2009 at 4:41 pm
It’s interesting how saving nations are derided by the U.S. as somehow causing the crisis. In fact, our consumption proceeded unabated because of the savings of other nations. The obfuscation is mind-boggling.
July 4th, 2009 at 4:52 pm
999,
sorry, I hear that. try: LSS: PROC no Buy USTreas, PROC no get MFN. ask Bob Rubin, you know, of 42 y C infamy..
July 4th, 2009 at 6:40 pm
Well … the real problem is overconsumption reflected in all regimes and markets and that puts the blame on us, I mean US and Japan and China and the different governments.
What is produced in China that is absolutely essential, can’t live without?
….
Pots and pans is a good answer, what else …?
This is like Keynes’ paradox of thrift. What’s so paradoxical about thrift? Take it up with Ben Franklin! We shift our jobs over to China. They take them.
We want cheap goods. They steal our intellectual property.
We sell them cheap commodities. They sell us cheap commodities.
We send them worthless paper. They send us poison dog food.
Who do you blame? Saudi Arabia sends us oil that we burn up doing nothing important. Who is getting hosed? We are sending them back more worthless paper. Oil is a real ‘Good’ good. It can heat your house but it also can be a chemical feedstock, it might cure cancer or allow someone to travel out of the solar system. And it is burned up. Lost forever!
In the no- nothing world the lowest common denominator is waste. We are all to blame.
July 4th, 2009 at 7:04 pm
The macro economic implications of high surpluses in one country and high deficits in another deserves some careful thought. Greenspan lower interest rates to avert a downturn AND try to maintain high employment in the US. It worked. Unfortunately the buckets of money made available didn’t find useful effect instead they sparked a bubble in housing. Inflation was kept low, because of the high productivity, IN CHINA. Unfortunately high productivity in china does not help the US.
If there had been a significant and sustained downturn in the US from 2001 onwards it would have forced household savings rates UP forced capital allocation into areas of TRUE internationally competitive PRODUCTIVITY and dramatically slowed China’s growth rate and potentially improved capital allocation in that country too.
In interesting corollary to the current discussion about regulation implied by this analysis is that more than likely improved regulation is not the full answer. Curbed credit expansion and closer supervision of credit agencies while important are probably not a complete solution. Ironically higher interest rates may well be. More than likely all this fuss could be avoided if it was not permisable for the FED to lower interest rates to below lets say 4%.
If no one can come up with a sensible plan to allocate capital effectively and pay interest at 4% its probably not worth while doing it.
There ya’ go simons simple solution to macro economic imbalances.
July 4th, 2009 at 8:06 pm
So, we are now being told that saving or shorting the markets is bad. As McEnroe would say; “you can’t be serious”!! Problem is, they are.
“Up, up and away in my beautiful balloon” were song lyrics not a recipe for securing one’s future or for investing. The assclowns in D.C. are about as amusing as a mediocre vaudeville show. Why foreigners put any faith in investing in this country or the USD goes beyond my comprehension.
July 4th, 2009 at 8:34 pm
I’m amazed I haven’t seen the words “free trade” “tariffs” “protectionists” yet in any of the comments. The way I see it, the financial problems of the US began when 1) Reagan said deficits don’t matter and then proceeded to greatly increase the Defense Department budget each year while greatly cutting the tax rate on those making the most (GWB repeated the stupidity), and 2) the mainstream media (MSM), 100% of Republican national politicians and about 50% of Democratic national politicians (including Bill Clinton, Gore, and Pelosi), and corporate America all jumped bigtime on the “free trade” bandwagon and how that’s just the way it had to be, end of (non)discussion.
Of course no debate was ever had on “free trade” except the one that opened up the floodgates and that was the one Gore – Perot debate on Larry King about NAFTA. And that’s been about it.
Why no more debates in the mass media about “free trade” considering the incredibly massive ramifications of it? Because the exact same people who were on the board of directors of the mainstream media companies were also on the BOD of big corporate America, and those execs were going to benefit massively on a personal level (with a long-sought-after bonus for corporate America of killing the private unions for the most part at the same time) by sending production overseas.
By doing this, labor costs would collapse, profits would soar and so would the wealth of the corporate execs from increased salaries, big bonuses, and a big jump in stock prices for the big stock holdings they had. So no debate about the merits of “free trade” was going to be allowed in the MSM.
The politicians jumped onboard because those same corp execs were bankrolling their campaigns.
@ Onlooker from Troy at 12:44 pm
I completely agree. The big power in this country (MSM, all the presidents since Carter, all the Republican national politicians and a lot of the Dem natl politicians, and corporate America) have lied bigtime to the American people. Actually they haven’t even lied, they don’t even let the shit get discussed.
In the US, any politician or person in the media who mentions the need for tariffs so production can come back to the US, is called a protectionist by all three centers of power (MSM, powerful national politicians, and corporate America) is called a protectionist which is supposed to be the equivalent of being called a communist when the USSR was still around.
The whole system of having China produce everything the US needs and having the US pay for it by borrowing the $ from China was, of course, stupid and unsustainable and was only done for one and one reason only – corporate execs were going to (and did and do) make a killing financially from it. These “American” corporate execs and the politicians they were paying for had no problem with working against the longterm interests of the US (including sabotaging the US military by outsourcing production of goods of vital importance to the US military like neodymium magnets) and destroying all the local economies in American towns and states by outsourcing all those manufacturing jobs.
Well it appears the game is up and the unsustainability of that system is manifesting itself via a US govt that is so in debt that it’s getting past the point of no return (the same is happening on a state level too)and manifesting itself via a high % of Americans who are 1) broke or close to it, 2) not making enough money to comfortably pay the bills assuming they aren’t unemployed.
I think the time when words like tariffs, free trade, and similar subjects will no longer be taboo is upon us. If it isn’t, then we’re in really big trouble.
Badtrader
July 4th, 2009 at 9:56 pm
Barry, I think this post is way below your usual level. In fact it reminds me of the “blame CRA” crowd. Here are some links for those interested in data supporting another view.
—-
A recent 3-minute vid with nice animated charts, from FT’s John Auther, on Chinese currency policy.
http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html?_i_referralObject=6397103&fromSearch=n
—–
A magazine piece by James Fallows on Chinese currency policy. (BTW Setser mentioned the other day in a comment thread on his blog that he was a source for this piece.)
http://www.theatlantic.com/doc/200801/fallows-chinese-dollars
Fallows: “At no point did an ordinary Chinese person decide to send so much money to America. In fact, at no point was most of this money at his or her disposal at all. These are in effect enforced savings, which are the result of the two huge and fundamental choices made by the central government…. This is the bargain China has made—rather, the one its leaders have imposed on its people.”
—-
If you’re going to blog about China, you really need to read Michael Pettis (as others have pointed out). Low rate of posting but very solid stuff. Pettis worked on Wall Street, taught at Columbia, and has been teaching in China for a while now.
http://mpettis.com/
—-
Having followed this blog since last fall and heard you on Bloomberg radio a few times, you don’t come across as a guy who uses the “hidden agenda” style. But, damn, Brad Setser just put up a post a few days ago called “The savings glut. Controversy guaranteed.”
http://blogs.cfr.org/setser/2009/06/30/the-savings-glut-controversy-guaranteed/
Several of the world’s biggest surplus countries, including China and Saudi Arabia, don’t publish data on investment flows. Brad has been posting steadily on the nuts and bolts of doing forensic accounting to figure out what’s up with that money. Most of his posts are extremely wonkish, but last week he put up a few in which he takes a step back and tries to assess the overall situation. I very much recommend them.
July 4th, 2009 at 10:56 pm
Matt has it right. Pettis has written about this extensively.
Both the Chinese government and the US are to blame for this. We all know what the US and it’s banks did. But, the housing bubble was simply a by product of China’s easy money policy towards us. If China had forced US Treasuries to be sold at a realistic interest rate, it would have foreced up US interest rates, making the bubble impossible. Even Easy Al could not have inflated the bubble.
Instead, the Chinese were the predatory lender of last resort, manipulating their currency to keep selling us stuff at Walmart and then recycling the dollars into loans back to us to buy more stuff. It was a short sighted business plan because the accumulation of dollars had to become untenable at some point. The way to relieve the pressure would have been to buy some stuff from us, but that conflicted with the Chinese plan sell everything to everyone. The foreign purchases could have been accomplished by paying workers a decent wage in a strong currency so that they could buy foreign goods. These workers could have then bought some of those luxury American goods like iPods and iPhones, cars, etc. which would have reduced the trade imbalances. This would have raised the Chinese standard of living. Instead they were paid low wages in a currency kept articially low and the reserves simply piled up in the government’s hands. Whatever discretionary income the few decently paid Chinese made was recycled internally into things like real estate. Now that it has accumulated all this paper wealth the government of China is whining about the safety of the paper. Tough.
July 5th, 2009 at 12:32 am
Mike in Nola, I think you’re missing the point a bit regarding Chinese goals when you say “it was a short-sighted business plan.”
Chou En Lai, who helped set up Nixon’s first visit to China, was asked his opinion of the French revolution which occurred in 1789. He replied, “It is too early to say.”
I believe the goal of the Chinese is not to make money, but to strengthen the nation such that it has the power to control its own destiny. This is the metric by which the Party’s legitimacy is evaluated. So when others see China’s stockpiling of strategic materials as a speculative move based on price levels and alternative uses of their trade surplus, I’m more inclined to see it as an insurance policy. If things take a bad turn for the worse, they will move on Taiwan and can expect a couple of years of trade sanctions in consequence so best to prepare for that now.
I lived in Tokyo more than 10 years and so could observe an East Asian model of export-led growth first-hand. Here’s one example. When I arrived there in the mid-80s, ATMs were turned off early Friday evening and not turned back on until Monday morning. What do you think was the effect on consumer spending? (And this was a cash society to an incredible extent; few people were able to obtain credit cards and there were no personal checking accounts or debit cards. All that changed in the aftermath of the bubble.)
Another example: The finance ministry permitted banks to pay a trivial rate of interest on deposits, say 0.25%. But the postal savings system was permitted to pay a bit more, say 0.5%. The vast amounts of consumer savings accumulated by the postal bank were invested according to the nation’s industrial policy. (This might have been quite effective for building up heavy industry in the 50s and 60s but was enormously counterproductive by the 80s.)
So currency manipulation is only part of the story, but maybe the most important part. BTW last week The Economist reported that consumer spending in China fell from 46% of GDP in 2000 to 35% last year, and only 30% of rural households have a refrigerator.
July 5th, 2009 at 12:34 am
Mike in Nola wrote:
“But, the housing bubble was simply a by product of China’s easy money policy towards us.”
Hmmmpfff! Let’s not forget the slothfulness of Congress and federal regulators who did nothing (and in some cases actively worked against) to reign in the rising abuses in the sector.
One thing that never cease to amaze me is the willingness to give a free pass to a political system (ours) that has demonstrated time and again how inappropriate and useless it can be when it comes to work for the common good. Just look at what is going on now: we’re in the worst economic crisis since WWII, unemployment will rival the Great Depession, (U-6 is already north of 16%), health care insurance industry is criminally sucking out huge amounts of money (google “Wendell Potter” “testimony” “Heath care insurance” for an eye-opening account of their practices) that could be put to much better uses, and what do we have in Congress and the WH?
Freaking business as usual! Everything is honky-dory, we can play the “he said she said, they didn’t tell, we won’t say and what have you, their stupid blame games keep on going stronger than the Energizer Bunny while they collect ever increasing amounts of this legalized bribery called campaign contributions.
We won’t get out of this clusterfuck with such laggardship in DC.
July 5th, 2009 at 1:32 am
Frustration with DC is bound to increase. The question Republicans must be asking this weekend is, will Palin do a Perot? He got 19% of the vote in 1992, and she could probably match that today. Her timing with respect to the June unemployment numbers is interesting.
July 5th, 2009 at 7:56 am
It is amazing how two pundits can stand on different sides of the economic elephant with one seeing a tiny rope and another seeing a big gray wall. It wasn’t a savings glut. It was a fiat currency printing glut brought about by unnaturally low interest rates worldwide. That caused too many dollars to chase too few goods which drove the price of everything up to unsustainable levels. We now here sit on this mountain of money and debt. No one wants to move and the holders of the debt especially don’t want us to move lest the assets start sliding down the slippery money slope. The only problem is no one has any more money to either take the assets off the money pile or push them higher in value. So we all sit here. The governments of the world continue to print. The rest of us muddle through paying and praying off debt and saving money as fast as possible hoping the Joker doesn’t dump that can of gas on the whole lot and light the match
July 5th, 2009 at 9:09 am
It wasn’t a savings glut, it wasn’t irresponsible borrowers, it wasn’t Brenton Woods, it wasn’t CRI, it wasn’t Federal Reserve interest rate policies.
It was the actions of Investment Bankers, both directly and through governmental influence. Very smart people with self-centered ambitions.
July 5th, 2009 at 9:38 am
For a nation that thrives on the illusion of control, it’s irnoci that it would blame China.
China will do what China thinks is good for China , not waht The US thinks is good for China.
And Americans who blame Chinese are complete idiots because that means they actually believed that all nations wold do what is good for trade before doing what is good for their leaders or their nation.
July 5th, 2009 at 9:43 am
For a nation that thrives on the illusion of control, it’s ironic that the US would blame China.
China will do what China thinks is good for China , not what the US thinks is good for China.
And Americans who blame Chinese are complete idiots because that means they actually believe that nations will do what is good for trade before doing what is good for their leaders or their own country.
July 5th, 2009 at 10:19 am
I guess we would need to differentiate cause and blame.
Yes, the Chinese contributed to the imbalance but can the Americans blame them? No, because each country should be defending its own interest and always expect that another country could to turn on them.
July 5th, 2009 at 11:59 am
«The fact is savings -> investment -> production -> consumption; it’s not the other way around.»
BOTH are true. savings -> … -> consumption is the long term foundation that creates capacity; consumption -> … -> savings is what happens in the short term and for a given capacity determines its utilization.
July 5th, 2009 at 12:02 pm
«for a given capacity determines its utilization.»
And that is the approach of Keynes — it is mostly centred on utilization of existing capacity rather than growing the capacity itself.
Even if Keynes wrote quite a lot about the issue of capacity, or capital development, most famously that it is driven by “animal spirits”.
July 5th, 2009 at 1:58 pm
So let me get this straight – most of the growth in the US over the last decade was fueled by debt, one could argue that this would be a similar description for the EU. China’s growth was built on manufacturing and exports. To who? To us, and to the EU, that’s who. So if our growth, ie; our CONSUMPTION was built on a debt bubble, then the manufacturer that filled the need of hit consumption was being expanded by demand built on DEBT. Explain the disconnect here . . . .What I fail to see mentioned is how China’s expansion was in great part due to our debt bubbles. You cannot disconnect these two facts.
Most growth across the entire planet over the last decade was built on a debt bubble. There is no way you can completely detach China’s growth from this fact. We deflate, they deflate. They are not going to be able to increase internal consumption enough, at a fast enough pace, to offset the decrease in exports that is coming.
Lastly – Barry, why on Earth are you quoting Chinese officials in the first place? You hold no punches when it comes to accusing (quite rightly) our own officials with obfuscation of the truth – somehow information and statistics coming out of a communist totalitarian government is treated as valid? Please.
July 5th, 2009 at 3:58 pm
Snickers:
I see what you’re talking about in terms of advancing China’s independence. That was the point of the Great Leap Forward, etc. The problem has come about because the current leaders now seem to think the means (export economy) is the end. They still don’t see that they had to change the model at some point. They are still trying to promote the same export model now with various subsidies and currency manipulation. As Hugh Hendry pointed out in the interview linked last week, the USD/Yuan exchange rate rose just before the crash last year and has remained practucally glued at the same level since, unlike every other major currency.
Michael Pettis writes extensively from Bejing about the Chinese economy. http://mpettis.com/
Francois T: I’m not saying give our government a pass. I think I mentioned that at the beginning of my dissertation. What I am saying is that it takes two to tango when it comes to huge surpluses that occur voluntarily, as opposed to colonial systems.
July 6th, 2009 at 8:38 am
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