A wise editor of mine once told me that Martin Wolf's columns in the Financial Times were the hardest things he read in the morning, and the most rewarding. That description fits Wolf's piece on the role that "surplus countries" -- namely, China and Germany, both of whom have giant current accounts surpluses -- played in the recent financial bust, and will need to play if there's to be any enduring recovery. This, I'd say, is the key bit:
low bond yields caused by newly emerging savings gluts drove the crazy lending whose results we now see. With better regulation, the mess would have been smaller, as the International Monetary Fund rightly argues in its recent World Economic Outlook. But someone had to borrow this money. If it had not been households, who would have done so – governments, so running larger fiscal deficits, or corporations already flush with profits? This is as much a macroeconomic story as one of folly, greed and mis-regulation.
Wolf explains why here. Bit of a slog, but worth it.
June 12, 2009; 11:23 AM ET
Categories: Financial Crisis , Solutions
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