can be explained in this graph from Wolf's article:

The eurozone has had a stable and balanced capital account throughout the past 20 years - no excessive reliance on foreign capital, and no excess lending.

As Wolf notes:

Last year, the aggregate surpluses of the world's surplus countries reached $1,680bn, according to the IMF. The top 10 (China, Japan, Germany, Saudi Arabia, Russia, Switzerland, Norway, Kuwait, the Netherlands and the United Arab Emirates) generated more than 70 per cent of this total. The surpluses of the top 10 countries represented at least 8 per cent of their aggregate GDP and about one-quarter of their aggregate gross savings.

Meanwhile, the huge US deficit absorbed 44 per cent of this total. The US, UK, Spain and Australia - four countries with housing bubbles - absorbed 63 per cent of the world's current account surpluses.

The bubbles created that.

The positions of Germany and the Netherlands on one side, and Spain on the other, raise the question of whether intra-eurozone imbalances change the picture, but frankly, I think not, as this reflects different economic specialisations within the wider region (export to the wider world or within Europe, different stages of development) - but others may disagree.

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

Dear Sir,

Martin Wolf ("Asia's Revenge", 9 October) brings up again the "savings glut" theory to try to partly exonerate Western financiers from their follies. While Asia's mercantilist policies, and their very real desire to no longer have capital account deficits are very real, their savings "glut" has been fully created by policies in the West. Central Banks, led by Alan Greenspan's Fed, maintained absurdly low interest rates despite massive evidence of asset bubbles; 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 other parallel policies such as labor market deregulation. Fundamentally, people in the West 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 prosperity of the past years in the West was essentially fake.

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

Jerome, I hesitate to question you here, as my understanding of these issues is completely based on pop economics and folk Japanology, but I have always been under the impression that, at least in the case of Japan vis-a-vis the U.S., the policy of accumulating capital surpluses was quite intentional (on the part of Japan), and it was the U.S. that became the beneficiary of Japanese hyper-industriousness and monomania about building up foreign reserves.

Chronologically speaking, what came first: the emergence of U.S. policies that enabled/facilitated Japanese policies, or the other way around?

Truth unfolds in time through a communal process.

I'll post anything I damn well please.

1.  Woke up to CSPAN Washington Journal to find out that the US is interested in "nationalizing" banks ... your opinion?

2. A lot of knuckle-dragging mouth breathers calling in; a lot of fear of "socialism".  Now THAT is something I could get into long term ... a diary series on the REALITY of socialism, not the marketing fear job done on Americans.

3. Some of the callers are actually right on; GOOD to hear.  This is becoming quite funny.

They tried to assimilate me. They failed.

I can't believe they would advocate changing lending practices to incorporate collateral value TODAY.

It should be clear by now that this is fair-weather economics, shouldn't it? Linking credit and the housing market is procyclical and therefore dangerous.

Un rapport préconise de développer le crédit hypothécaire en France - Economie - Le Monde.fr

Les auteurs du rapport pensent que le financement de l'accession à la propriété dans l'Hexagone "aboutit à rationner le crédit" au détriment de particuliers qui, tout en étant solvables, n'entrent pas dans les critères des banques. "Une évolution est souhaitable", écrivent-ils, d'autant que la Commission européenne veut élargir le choix de crédits, notamment en assouplissant les conditions d'octroi du prêt hypothécaire.

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

To one who has no expertise whatsoever in this area, your version at least makes sense. This glut theory just seems laughable to me.

On Wall Street isn't the simple answer to Where did the money go? that It was never there.? In the terms that I can understand.

Experience keeps a dear school, but fools will learn in no other. -- Dr Johnson

Just for the record the "fear of what had happened to its neighbours during the Asian crisis" is not some neutral issue like fearing earthquakes or typhoons.

The worst effects of the Asian crisis were created by IMF policies (as documented by Stiglitz.) (Such policies were designed to benefit Western banks at the expense of these countries.) As such we can very likely say that the worst effects of the Asian crisis were created by Western policies and Western policies made mercantilism the only rational path for Asian countries to pursue.

J. A. Hobson's analysis in Imperialism, 1902. only needs some modification to explain the current situation.  In his analysis imperialist countries at the turn of the 20th century, especially GB, by virtue of keeping domestic wages low, had surplus capital for which they wanted to find profitable investments.  This was, in large part, satisfied by investing in infrastructure and resource extraction in imperial dominions where their investments were protected by colonial administrators and, ultimately, by the military might of the imperial power.  Domestic allies prospered by building the ships and making the arms, etc.  The current US adventure in Iraq can be seen as a crude failed attempt at such a traditional approach.  But attempting such an approach with China would be seen as madness by almost all US citizens.

The US approach since the 1990s has involved the destruction of domestic industries that provided high wage jobs by buying up companies, shutting down US production, exporting the manufacturing equipment to China and purchasing similar goods from newly minted Chinese manufacturers at a fraction of the cost.  The fact that the quality and hence the value of the Chinese goods was often significantly lower was compensated for by their stunningly lower prices, which were affordable by a relatively impoverished population now working at jobs with far lower wages and less benefits.  The profits were in the retailers, (where labor costs were traditionally lower,) who distributed the Chinese goods, by those who handled the shipping and distribution of these goods, and by those in the financial sector who set up the arrangements.

Given the cost of labor in China, which is held low by   more than one billion rural agricultural population longing for even marginally greater income, the Chinese government took dollars from the US and required workers to be paid in renminbi.  The effect was that they accumulated over one trillion of US dollar denominated government paper.  They couldn't have paid their workers anything like the value of their labor without setting off even more rampant Chinese inflation.  Much of it went into the US real estate bubble via MBSs and CDOs from Fanny and Freddie, etc.  In a very real sense, the US exported employment and imported under-employment in the form of Mc-jobs.  We also exported the capital surplus so as to get it back in the form of loans to further inflate the real estate bubble.  This was the source of the benefits of this cycle which were in the form of fees and profits on the transactions in the financial sector that accompanied the "securitization" of the economy.

Hobson noted that Imperialism was a bad deal for the imperial country as a whole, but that it was highly beneficial to a particular elite.  The results of the "globalization" version of financial imperialism have been and are being vastly more damaging not just to the US domestic economy, but to the whole world.

"It is not necessary to have hope in order to persevere."

Jerome, your Anglo Disease theory (to the limited extent I actually understand it) seems to imply that, as a result of cheap money, external deficits and capital inflows, the US and UK have been disproportionately responsible for creating the conditions under which the current dislocation has taken place.

Does that plausible conclusion imply that the rest of the world will, to some unknown extent, now have to detach itself from the Anglo system, thereby dethroning the dollar as the world reserve currency and gradually moving New York and London awau from the world's key finance paths?

If such a detachment does begin to take place, should we expect, for example, failing US Treasury auctions and a bankrupt Treasury, in fact if not in name? A rising fraction of international business transacted entirely in non-dollar currencies?