The Global Savings Tsunamis

by Robert Z. Aliber

The global economic crisis has some surprising causes, but who would have guessed that overzealous saving was one of them?

Renowned economist John Maynard Keynes explained the crisis of the Great Depression in terms of the “paradox of thrift”: Individual saving is a private virtue, but when many individuals rapidly increase their savings at the same time, the demand for goods and services will drop and the unemployment rate will rise. In the last 30 years, as national financial markets have become increasingly integrated, some countries with exceptionally high savingsrates—Singapore, Japan,China—have made anendrun around Keynes’s paradox and exported some of their excess savings to their trading partners, in particular, the UnitedStates.

The huge global pool of savings that has accumulated in this way over the last few decades, now amounting to trillions of dollars, has been the source of four successive tsunamis that have first uplifted, then flattened, some of the world’s leading economies. The first tsunami struck Mexico, Brazil, and other developing countries in the 1970s; the second hit Japan and three Nordic countries in the late 1980s; another swamped Thailand, Malaysia, Russia, and eventually Argentina in the mid-1990s. We are now living in the aftermath of the fourth tsunami.

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