Macroeconomics
of cards was built. The so-called Minsky-moment arrived: the long credit expansion cycle promoted behaviors and incentive structures promoted extensive risk taking and complex financial
innovation that were its ultimate downfall.
At the same time, there was a limit on the extent and duration of the US current ac c ou n t deficit, w i
t h o u t
h i t t ing that Triffin moment, when that deficit unde rmi nes i n v e s to r s ’ embrace of the
dollar as
the numeraire and central bankers use of it as a reserve asset.
As a governor of the Federal Reserve Bernanke argued that the surplus savings in Asia
also lies in ruin. A new solution to the surplus capital problem has yet to emerge.
SURPLUS CAPITAL AND THE MARKET ECONOMY
FX
with our physics metaphor, the difference between the surplus savings Bernanke identified and the surplus capital problem that we suggest lies at the heart of the financial crisis is like the difference between Einstein’s theory of special relativity and general relativity.
Modernity itself is predicated on a surplus of capital. It is a generalized condition and speaks to the incredible success of the market economy. It has produced enormous quantities of wealth, beyond the imagination of all past civilizations; unleashing productive power unfathomable previously.
There was, and continues to be, a protectionist current in the US. It began weakening the fragile support for free-trade and open markets. There was international backlash as well, with countries arguing that the US current account deficit posed the greatest risk to the global economy.
If Reagan-Thatcher was in part a response to the problems that emerged and submerged Bretton Woods, and now its solution, which worked for two decades,
helped explain the Greenspan conundrum, which referred to low long-term interest rates even as the Federal Reserve tightened monetary policy.
Bernanke
suggested that the under- developed domestic capital markets led some countries to therefore
export their savings.
The surplus was relative to a country’s ability to absorb it itself.
This is not the same thing as the surplus capital problem which we want to discuss here. Staying
We propose that modernity itself is predicated on a surplus of
capital. It is a generalized
condition and speaks to the incredible success of the market economy.
It has produced
enormous quantities of wealth, beyond the imagination of all past civilizations; unleashing productive power unfathomable previously.
FX TRADER MAGAZINE October - December 2013 59
B e r n a n k e argued that the surplus savings p r obl e m was specific to several c o u n t r i e s , mostly in Asia and the Middle East.
While
there was a demog r a p h ic component, the problem could be remedied by boosting do mes t ic
consumption, which tended account for a low proportion of GDP, and developing the capital markets.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92