"The global imbalances are widely seen as a problem, especially by the US government and US economists. Sometimes they are even seen as a cause of the financial crisis (Suominen 2010). "
like the note of airy expository delivery ???
"Yet ..."
"...such imbalances – i.e. current-account surpluses and deficits – reflect international intertemporal trade, and there should be gains from such trade as from “ordinary” trade, on the basis of standard arguments for free trade (see Obstfeld and Rogoff 1996, Chapter 1)."
there you have it ..why in a model market earth where something called "intertemporal tadre" ...trade
is real ie a done deal contracted and barter based too i assume ....
ie not simple a choice process to contract for some trade now with unit agent expectational notions of trade tomorrow and tomorrow and tomorrow.. all quite collectively unresolved beyond the barest futures markets and proxy markets ie forex and national long run interest rates ..
oh i could go on but reification triumphs right here in the front hall eh ...like lots of good magic tricks the fix
is in from jump street
" Furthermore..."
"... an advantage of the present system is that an international general equilibrium is established which yields a set of current-account imbalances that do not require international central planning or coordination, but which respond to particular circumstances in different countries. "
wonderful ..the lack of overt central "coordination" is not a basis for concern in the face of chronic spontaneous "bop imbalances " but a feature of the systems iemergent ptovidential feature
the miracle of the planets markets.... once liberated ie the borders opened wide to exchanges
of products and ....assets comrades assets
entendez vous
"The system depends, of course, on a relatively free international capital market."
depends ??? sounds like the degree of relative capital market free ness might be the stinger
on this moral tail eh ??
the emeritus meistro calls his ".. approach .."
" a neoclassical way of looking at the international system "
alert
"... has to be subject to qualifications. These qualifications provide possible rationales for the common concern with global imbalances."
"A key issue is that funds from countries that are net savers called the savings-glut countries (where savings exceed domestic investment) have been lent to borrowers (notably the US) who have used these funds unwisely, namely for current consumption and for investment that is not “fruitful.” "
unfruitful C and I ????
"The main form of “unfruitful” investment has been in excess housing construction. "
don't you mean house lots here ..how could we seriously over build housing it self ??
now after that wag of calvin's finger the shoulda
"The funds coming from the savings-glut countries should have financed fruitful investment in the US and elsewhere."
" Instead"
besides house lots there's lending " to the US government, financing a war and tax cuts. "
"the result "
"...the US, have failed to build up resources out of which interest, dividends, and necessary repayments can be made."
we didn't spend our international borrowings to build some domestic future export producing capacity
" Yet such debt service or returns from purchases of equity are an essential feature of intertemporal trade."
and apparently they don't emerge out of any inner necessity of this global trading and investing process eh ??
but now we begin to turn down the long long home stretch
"Above all, we have to explain why more funds did not go to finance ..."
get your belt buckle tight as hell here
".. fruitful investment, whether in the US or elsewhere, notably in developing countries. "
ie we at least in part needed to take those incoming funds and buy /build productive capacity in the emerging world
lets say thats all we needed to do fruitful investments are fruitful investments if we own em in the long run the where of it doesn't matter to ...us ...us ...US ..err meaning the amerikan investor class
now we see just how much this is about fruitful over there investment by US
"... In developing countries there is often an aversion to incur current-account deficits for two reasons – namely the instability of capital inflows and the dislike of real appreciations. These are understandable motives, but have created a problem when there was a worldwide search for sound investments to place the funds coming from the savings-glut countries."
get that the savings glut countries ...not US face barriers to investment in the emerging markets because...well the inflows lead to ...outflows hot money wise
and yes the glut is in hot money ..right ??? hot money chasing liquid investment ie investment in obligatory paper denominated in some one elses currency or ...your own
the pivot
obligations of one zones agents to another zones agents in the other or a third zones currency
that said
now we get ...keynes !!!
"A useful concept, originating with Keynes, is the “paradox of thrift”. This idea suggests that an increase in savings motivated by the admirable Victorian virtue of prudence – which involves foregoing consumption today for the sake of more consumption tomorrow – does not necessarily lead to greater capacity to consume tomorrow. It may just lead to a current decline in aggregate demand."
closed system keynes circa 1947 samuelson !!!!
but watch
" Extended to the world economy"
ie going to a network of inter connected market sustems with heterogenious characteristics etc
not the simplicity of the closed K system
" it helps " that is the keynes C model i guess
"to explain the common criticisms of those countries, notably China, that have had large current-account surpluses."
they aren't spendng enough on exports
" But the increase in net savings by the savings-glut countries did not actually lead to a decline in worldwide aggregate demand, as the simple Keynesian approach would imply. "
"Rather it led to borrowing for consumption and for unfruitful investment."
yikes this is muddle eh
aggregate demand isn't necessarily inadequate its just not fruitful
keynes just got his walking papers exit stage left
"Hence"
hence indeed
"the effect was indeed adverse. " but not keynesian eh ??
just the result of unfruitful expenditure
looked at inter temporally that is
the climactic proposition:
"The recognition of this adverse effect, as well as various well-known inefficiencies in the world’s financial sector, led to the world financial crisis."
recognition of this effect ??
you mean suddenly collective market expectations revalued the future outcome of existing
international
trade and investment patterns ???
and that hit the global asset markets and that led to contracting trade in products ??
"The basic neoclassical model really requires increased net savings to lead – induced by the decline in the real interest rate – to borrowing for more fruitful investment. "
i think we got you on that ..the key is fruitful
ie productive of future gain ...profit ...surplus value
just to de mystify it here
"There was a failure of the world’s financial sector in turning increased savings into fruitful investment"
why was there a car crash at the coner of hollywood and rose ??
failure to drive correctly
" and that meant -- to repeat-- that the savings glut led to a debt crisis. The crisis was thus caused by an interaction of the particular global imbalances that led to low interest rates and high credit availability with the failure of the financial sector."
the circle is not unwinding if you borrow real monety and buy lots that will lose mucho value post purchase and blow the rest on beer and wide screen s for sports watching ....you got nothing more on the future income side to service the added debt ??
the old house hold paradigm
"Here we should just mention that if there had been an increase in US savings rather than in other countries, there would also have been a decline in world interest rates, but this would have actually reduced the US current-account deficit and thus reduced (and not increased) the global imbalances.
"
in other briefer words
if it had all gone down different if uncle and his people had ben the planets biggest savers not biggest borrowers and over consumers
then it would have worked out lot different
"The basic problem has been not the global imbalances as such, but rather the sharp and prolonged decline in real interest rates, when combined with the inadequacies of the financial sector."
oh no a sudden swerve here ..warning there's an emertus at the wheel here
not a swerve into on coming traffic just off an exit ramp and onto a utility road not running
exactly parallel to the fruitful investmant turnpike in fact its more like a weighing station without the scales
now the basic problem don't exist along the frutful non frutful axis
now its the low real rated funds themselves
presumably thrown up by the trade imbalances
flowing into a waco system of international hi fi fun houses
and i guess blowing balloons that burst
"Going back to what actually happened in the period that ended in 2008, we might then ask: “were net savings of the savings-glut countries too high or were sound, fruitful investments in the rest of the world too low?”
gosh now we're off on another quest is x too high or y too low ?
often that has no signifigant answer
"The particular global imbalances caused by the increase in savings (plus declines in investment in some cases) in the savings-glut countries led to the decline in the world real interest rates and high credit availability. This provided an investment opportunity for the rest of the world. But the inefficiency of the world’s financial sector and other factors led to an inadequate response in fruitful investment in the rest of the world, notably the US. "
for what now the fourth time we get this ??
to be fair a restatement is part of communication eh ??
i'll only note "and other factors " that can no doubt cover a lot of unmapped ground
then comes this:
"As noted above, one of the other factors was the reluctance of some developing countries with good investment opportunities to run current-account deficits."
" There could also have been more fruitful investment – notably in infrastructure – by governments, especially in the US."
infrastructure including the merit class system of pyramids no doubt
health education research
the arts and parks even
of course he's a citizen haut borgeois
a goo goo a public sector investment guy not just a corporate private investment hack
there's fruit trees to be grown in the pub sec too
starting with human capital
produced in part right there at the hopkins
"I would also add here that the reluctance to run current-account deficits by various smaller economies – whether Latin American, Asian or European – is thoroughly understandable when we take note of the instability of capital inflows that have caused so many crises, notably the Asian crisis of 1997-98 but also the current European ones. And this instability is yet another manifestation of a weakness in the world’s financial sector."
parting shot at
the WFS
implict we need a freer but more stable WFS to emerge out of emergence
how ???
