Friday, December 4, 2009

The Global Savings Glut Theory of the Great Recession

The Guardian journalist Robin Wells blames the crisis on cheap credit and excessive thrift by Germans and Chineses. And we haven’t seen the end of it. “Worse yet, the glut’s continued existence will feed a succession of asset bubbles until we confront it, head on, and find a way to soak up the excess” she writes.

I agree that once a huge amount of liquidity has been deluged on the world economy it can only be returned to a more reasonable level by several successive asset markets crashes that dissipate some wealth each time, absent a new innovation boom that would require a large amount of new real investment.

Read her paper here .

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