by Jerome a Paris
Thu Oct 9th, 2008 at 04:02:07 AM EST
Martin Wolf is back (see this earlier article which I discussed back in June) with his theory that the imbalances that led to the current crisis were caused to a significant extent by Asia's saving glut:
Any country that receives a huge and sustained inflow of foreign lending runs the risk of a subsequent financial crisis, because external and domestic financial fragility will grow. Precisely such a crisis is now happening to the US and a number of other high-income countries including the UK.
These latest crises are also related to those that preceded them – particularly the Asian crisis of 1997-98. Only after this shock did emerging economies become massive capital exporters. This pattern was reinforced by China’s choice of an export-oriented development path, partly influenced by fear of what had happened to its neighbours during the Asian crisis. It was further entrenched by the recent jumps in the oil price and the consequent explosion in the current account surpluses of oil exporting countries.
While there is truth to the fact that Asian countries sought to protect themselves from capital deficits, the reason for their capital surpluses comes from our deficits, which were themselves the result of coordinated policy choices - what I have dubbed the Anglo Disease
: the ideological choice to favor the income of the rich, by a combination of deregulation of corporations and finance, downwards pressure on wages, lower taxes, and the idolisation of financial investment and financial valuation of everything.
Monetary policy was a key component in this - cheap money allowed, through easy leverage, to increase the value of assets (whose distribution is even more skewed than that of incomes) and, more importantly, made it possible to hide from the masses, by providing consumer debt or house equity withdrawals to prop up their spending, that their incomes were stagnant - and were in fact being looted by the happy few whose pyramid scheme-like shenanigans are crashing down today (on us, not on them).
So sure, Asian countries had mercantilist exchange rate policies, and were happy to accumulate surpluses. Just don't dare say they started this. We did. On purpose.