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In the wake of the global financial crisis (GFC), scholars have highlighted many key factors in order to find whom to hold responsible for it. Among these possible factors are the current account imbalances and the entailed capital flows, which have led to many policy debates lately. As stressed by Fed’s Chairman, Ben Bernanke (2009), inequalities and bankers misbehaviours in the US would not be the main cause of the crisis. He argues that the Asian Thrift led to it and one should take a more global approach and look at “the global imbalances in trade and capital flows” in order to understand the turmoil. But this view is not unanimously shared and some counterarguments can be opposed to it. I will start by depicting how cross-country trade led to global imbalances through the global savings glut and why this could be a root to the crisis. I shall then focus on evidence disputing this theory and particularly why the Asian thrift might not be held responsible for it.
Before holding trade imbalances responsible, or not, for the crisis, it is important to understand where these came from.
Imbalances in US accounts were favoured by low US savings (Feldstein 2008) and Asian intervention policies following the crises of the 1990s, leading to an export-led growth strategy, foreign currency reserves accumulation, exchange rate policies (Bibow 2008) leading to an Asian “savings glut”, also known as Asian thrift (Bernanke 2005, 2009, Greenspan 2010). Also, a lack of investment opportunities in developed economies and higher oil prices in the Middle East meant a lot of money was available to developing countries.
Asian developments particularly affected America for several reasons.
Bernanke (2005) highlighted that America
References: -An Equilibrium Model of “Global Imbalances” and Low Interest Rates; Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas, 2008 -Did global imbalances cause the crisis? Kati Suominen, 2010 -Asia and the Global Financial Crisis, Bernanke 2009 -International Capital Flows and the Returns to Safe Assets in the United States, Ben S. Bernanke, Carol Bertaut, Laurie Pounder DeMarco, and Steven Kamin, 2011 -The Global Saving Glut and the U.S. Current Account Deficit, Bernanke, 2005 -Global imbalances and the paradox of thrift, Corden 2011 - Global imbalances and the financial crisis: Link or no link? , Borio and Disyatat, 2011 - Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate, Feldstein, 2008 -Global imbalances, Portes, 2009