THE IMBALANCES THAT spawned the global financial crisis and so-called Great Recession are mostly acknowledged now – in contrast to mid-2008 – but the fallout from the crisis is that recovery depends on the policies of the surplus countries. A healthy recovery could ensue if they reduce their net saving, which means either structural policies to lower the private sector’s excessive saving or willing adoption of structural government deficits.
An alternative equilibrium might be achieved were the imbalances to continue but be offset by steadily lower relative prices of surplus countries’ exports – lessening the real burden of imports by deficit countries – and a willing acceptance of low to negative real rates of return on the resultant net export surpluses. But this is an inherently unlikely programme. While surplus countries putting their net exports into deficit countries’ equities and real estate would be a valid alternative to...
