by Jerome a Paris
Fri Jan 2nd, 2009 at 07:14:10 PM EST
In an interview with the FT:
Paulson says crisis sown by imbalance
The US Treasury Secretary said that in the years leading up to the crisis, super-abundant savings from fast-growing emerging nations such as China and oil exporters - at a time of low inflation and booming trade and capital flows - put downward pressure on yields and risk spreads everywhere.
This, he said, laid the seeds of a global credit bubble that extended far beyond the US sub-prime mortgage market and has now burst with devastating consequences worldwide.
This argument - already advanced by a number of economists and largely endorsed by Federal Reserve chairman Ben Bernanke - suggests that the roots of the crisis do not simply lie in failures within the financial system.
It also implies that avoiding crises in future will require global macroeconomic co-operation as well as better financial regulation and risk-management.
As the article notes, this theory has been aking the rounds already, most notably thanks to Ben "Helicopter" Bernanke, who has specifically blamed the "savings glut" in countries like China, Japan, Germany and the oil exporters for the deficits in the US and UK (which were "forced" to borrow that excess saving and spend it on consumer goods). So the debt binge is not the fault of the borrowers - they were actually providing a service to the world.
We now see the second part of the strategy to push the blame somewhere else, ie on China and Germany: it's not the borrowers, and it's not the financiers either who are to blame: they were "forced" to deal with the surpluses of the countries that save more than they should, and so much money put in their highly competitive hands brought financial returns down and pushed them to seek riskier pastures to use that money. So they misallocated funds, and blew them, only because they had too much because the stupid Chinene and Saudis just have too much money!
This not only pushes the blame away from the policies of the neolibs (income concentration for the very rich, leading to income stagnation for everybody else, hidden from view by cheap and plentiful debt allowing consumption to continue), it also provides a convenient reason not to re-regulate the financial world. It's NOt the financier' fault, don't blame them! (*)
I expect this concept to be massively pushed in the coming months, with all the accompanying China- and Germany-bashing. The Germany-bashing is already in ful swing, as it includes the added bonus of an Europe.Is.Doomed angle... see all the articles about how Germany is pushing the whole world into a depression by refusing to be bamboozled into a massive spending spree - how Germany diplomacy is failing, and how Merkel's star is fading, and the mocking, snickering tones about the Germans who thought they were being prudent by not joining the fun and now are suffering as much as those that had fun while it lasted.
This is another case of passing the buck and deflecting attention from the core issue that policies over the past 10 years were geared towards the enrichment of the very rich - and the dissimulation of that fact.
(*) just one note: China's and Asia's did conduct mercantilist policies to protect their export-driven model, and they did have as a goal, after the 1998 crisis, to not be caught without reserves again, so they certainly were willing accomplies in the buildup of the imbalances. But they were not the cause of them.