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The world is trapped in a global savings glut

So starts an article published last week by Robin Wells on the guardian.co.uk website. The title of her article is: Big savers got us into this mess, as well as big spenders.

 

She starts by saying that the global savings glut is the source of our economic problems as well as an obstacle to our recovery and claims that the culprits are “thrifty Germans and state-owned enterprises in China…”

 

Wells notes that the cause of this “flood of savings” is due to the trade surpluses which both these countries have generated over the past ten years and claims that the world is saving more than can be profitable invested.  She says: “The corollary is that, eventually, those funds will earn less than nothing. And through financial engineering, those losses are now distributed around the world.”

 

Is too much saving as much a problem as too much spending?

Is too much saving as much a problem as too much spending?

“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.”

 

“Short of a miraculous new technology to soak up the savings glut, a global rebalancing of production and consumption will be necessary. Persistent surplus countries will need to save less and consume more: deficit countries will need to consume less and save more.”

 

To read the whole article click here.

For Economics course and revision books click here.

 

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