Regardless of whether America's persistent current-account deficits really can be explained primarily by the accumulation of excess savings abroad, recent developments now promise to render this popular theory obsolete. If so, the turmoil we have seen in bond markets so far this year could be just a prelude.
LONDON – In 2005, Ben Bernanke, then a governor of the US Federal Reserve Board, introduced the idea of a global savings glut to explain why the United States ran persistent current-account deficits. Departing from much of the academic thinking of the 1980s and 1990s, he argued that excess savings outside the US made interest rates – particularly long-term rates – lower than they otherwise would be.
LONDON – In 2005, Ben Bernanke, then a governor of the US Federal Reserve Board, introduced the idea of a global savings glut to explain why the United States ran persistent current-account deficits. Departing from much of the academic thinking of the 1980s and 1990s, he argued that excess savings outside the US made interest rates – particularly long-term rates – lower than they otherwise would be.