Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Dear Sirs,

The "savings glut" theory which Martin Wolf resurrects ("Asia's Revenge", 9 October) is a dangerous attempt to find mitigating factors to what is the root cause of the financial crisis: the reckless dereliction of duty by central bankers, politicians and financial leaders.
While Asia's mercantilist policies, and their desire to no longer have capital account deficits, are very real, their savings surplus has been largely created and fed by policies in the West. Central Banks, led by Alan Greenspan's Fed, maintained absurdly low interest rates for too long despite massive asset bubbles whose existence they denied against all evidence until the last possible minute. In fact, these bubbles were a desired result, as they allowed for massive profits by the financial sector, and made it possible to hide from the general population the stagnation of their incomes caused by parallel policy measures such as labor market deregulation. Fundamentally, people in the Western hemisphere lived above their means. Together, these policies created an appearance of prosperity for all (GDP was up, on the back of strong income growth at the top) while effectively organising a vast transfer of wealth from the many to the few.

The Asians were happy to tag along, as it allowed them to develop their infrastructure and economies, but it is unfair to blame them for the fact that the much touted - and very unequally shared - prosperity of the past years in the West was essentially fake, as the current crisis reveals the hard way.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Oct 9th, 2008 at 02:55:11 PM EST
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