When the world was a happier place, before economists annexed the lexicon of forensic pathologists, there was much talk about global imbalances. In the final quarter of 2005 the US current account deficit peaked at 6.4% of GDP. Some thought this was a bad thing, although few pinned down exactly why. Others thought it was a "stable disequilibrium". Export-driven economies, principally in Asia, could in effect provide vendor financing to the US via their high savings rates, foreign exchange reserves and sovereign wealth funds.
We now know that this stable disequilibrium did not beget stability. Instead, it inflated bubbles everywhere. Federal Reserve chairman Ben Bernanke presciently called the rise in current account surpluses in Asia and oil-exporting economies a "global savings glut". By contrast the US household savings rate as a share of disposable income gradually declined from 10% in the early 1980s and tipped into negative territory in...
