Global Imbalances - A contemporary Rashomon saga

Global Imbalances - A contemporary Rashomon saga - Global...

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Global Imbalances: A Contemporary “Rashomon” Saga by Nouriel Roubini 1 Stern School of Business New York University and Roubini Global Economics www.rgemonitor.com February 2007 1 nroubini@stern.nyu.edu
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The current debate on global current account imbalances is very reminiscent of the classic Akira Kurosawa film “Rashomon”. In that classic saga, a terrible crime has occurred in a forest and each of four characters agrees that something serious happened; but then each gives a different story and personal interpretation or spin of what happened and why it happened and who is at fault for it. Similarly to Rashomon, the facts of the global imbalances “crime” are not a matter of dispute: everyone agrees that global current account imbalances are large and growing, as the US saves less than it invests or spends more than its income, while most of the rest of the world saves more than it invests and spends less than its income. But the interpretation of the causes of this “crime” and which countries are at fault for it is very acrimonious, especially since, rather than four Rashomon characters, in this contemporary saga we have at least ten (and possibly more) different arguments of the causes and who is to be blamed for it. Here is the crime scene with the ten suspects for the crime. First interpretation or cause of the global imbalances saga: according to many the US is to blame because of its twin fiscal and current account deficit. Second, Bernanke comes to the plate: he argues that it has little to do with U.S. fiscal deficits (as the world is Ricardian) and is all about a “global savings glut” triggered by emerging market economies saving too much. Third interpretation: it is more of a global investment drought than a global savings glut. Fourth come the three musketeers (Dooley, Folkerts-Landau and Garber) of the Bretton Woods II hypothesis: China and many emerging markets are keeping their currencies undervalued to get export-led growth and thus causing global imbalances. Fifth, it is not China’s exchange rate policy that matters for its savings excess but rather the structural factors in its financial system and economic system that lead to excessive savings. Sixth, Richard Cooper argues that it is all due to demographics (and low productivity growth): Japan, Europe, and even China, need to save as they are ageing very fast and as they have little productivity growth (Japan and Europe). Seventh, it is all the fault of oil exporters that have not spent on investment and consumption their huge oil price windfall gains; they are saving it all. Eighth, it is due to housing bubbles partly driven by easy money, as both in the U.S. and a few other countries such housing bubble has increased national investment (in housing) and led to a consumption boom and savings fall. Ninth, it is all due to financial globalization as portfolio diversification and the disappearance of home bias is leading a large global demand for U.S. assets. Tenth, Hausmann and Sturzenneger
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Global Imbalances - A contemporary Rashomon saga - Global...

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