World Economic Forum Special Report: Contents
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Charles Dumas Director and head of the world service Lombard Street Research |
Half the world’s problem today is too much Eurasian saving. The other half is artificially induced spending by the rest. Eurasia is shorthand for China, Japan, Asian Tigers, and north-central Europe (Germany, Benelux, Scandinavia and Switzerland). The spenders? Most obviously Americans, other Anglo-Saxons and Mediterranean Europe. But the Americans are the biggest spenders of all, and the European deficit countries almost cancel the central-northern surpluses. So forget for the moment the rest. Asians save too much and Americans spend too much. That’s what it’s all about. The Eurasian savings glut is both the cause of financial imbalances and creator of ‘Goldilocks’ – faster growth with no inflation.
Without growing and unprecedented financial imbalances, between and within economies, there would never have been the present economic boom and prosperity. The savings glut is structural and deflationary. It won’t go away in a hurry. But the spending spree must and will end. When it does, the glut will probably cause severe deflation. It is expanding just as the counterpart borrowers’ and spenders’ ability to use it, notably US households, is flagging.