[A-List] Question for Henry Liu...

Jurriaan Bendien adsl675281 at tiscali.nl
Thu Jan 26 15:55:42 MST 2006

Henry, you argued:

Fed chairman-designate Bernanke argued in a speech last March 29, while 
still a Fed governor, that a "global savings glut" has depressed US interest 
rates since 2000. Echoing this view, Greenspan testified before Congress on 
July 20 that this glut is one of the factors behind the so-called interest 
rate conundrum, ie, declining long-term rates despite rising short-term 
rates. (...)
 That foreign central banks end up holding larger dollar reserves can hardly 
be viewed as national savings. (...)  The exporting economies ship real 
wealth to the United States in exchange for fiat dollars that cannot be 
spent in their own economies without first being converted into local 
currencies. If the local central banks exchange the trade surplus dollars in 
their economy for local currencies, local inflation will result from an 
expansion of the money supply  (...) The glut Bernanke refers to is only a 
dollar glut that in fact impoverishes the exporting economies. There is no 
global savings glut at all. While the exporting economies continue to suffer 
from shortage of capital, having shipped real wealth to the US in exchange 
for paper that cannot be used at home, their central banks are creditors 
holding huge amounts of dollar-denominated debt instruments. It is not a 
global savings glut. It is a global dollar glut caused by the Fed printing 
money freely to feed the gargantuan US appetite for debt. (...) 

Couldn't there be both a dollar glut and a savings glut globally (you have 
referred to sluggish final demand growth and excess capacity, due to 
maldistribution of income) ? What evidence is there for a shortage of 
capital in the exporting economies, or more precisely, what specific forms 
do you think this shortage take in the exporting economies? Also, as the 
dollar is the main currency used in international trade, then surely 
dollar-denominated exports do not necessarily have to be "shipped to the US" 
only - it affects all foreign trade?

Maybe you have time for a quick comment...


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