The world has witnessed an unprecedented glut of savings in recent years. This has been driven mainly by surpluses of the oil-producing countries and China and Japan. This has led to an increased global imbalance. China has invested $200 mn, though a tiny fraction of its $1.2 tn of reserves, in Blackstone, a US private equity company. More such equity investments will surely follow. India, OPEC members, and other developing countries with large foreign exchange reserves are now seriously considering of emulating China's strategy. Also, this saving is funding an increasing number of M&As in the world. To get the right perspectives and the likely outcome of this global savings glut, The Analyst invited experts David Wyss, Chief Economist, Standard & Poor's; Dean Baker, Co-Director, Center for Economic and Policy Research; Jan Lambregts, Head of Asia Research, Rabobank and Raveendra Batra, Professor of Economics, Southern Methodist University, Dallas to share their views.
David Wyss: We think the excess liquidity will begin to stabilize and dry up. But it won't go away overnight. The recent rise in world bond yields is evidence that the surpluses are becoming less important.
Dean Baker: I think that the glut is likely to come to an end. Essentially, the glut refers to an inadequate aggregate demand. This is a sort of an embarrassment to the economics profession, because we are not supposed to believe that inadequate demand can ever be more than a transitory problem. However, it is clear that it was a serious worldwide problem in the years following the 2001 downturn. |
