Is the Global Savings Glut Hurting Developing Countries?
While a single currency [Asian] is too ambitious a goal in the short term, exchange rate stability across East Asia is not hard too imagine. Given the depth of the reserves held by central banks across the region, as well as the general predilection over there for state-led development, why shouldn’t we expect future decisions regarding international monetary regimes to be made in smoky back rooms filled with Asian central bankers?As much as I like Cynic's Delight, I'm not sure I agree with Ben Carliner on this one.
Moreover, there is a big prize to be had at the end of the day. Any solution to the so-called global savings glut is likely to include the creation of a mechanism for all those Asian savers to intermediate their savings and investments. In other words, a deep, liquid bond market in East Asia. All those savings would be much better spent on infrastructure projects and other investments in Asia itself, and not on buying US Treasuries that are likely to lose much of their value in the long term.
- If US Treasuries are likely to lose much of their value in the long term, markets will adjust soon. People will not keep buying them for fear that others will soon begin to bail out. The feared loss in US Treasuries is something he can bet on if he's sure about it.
- Who are we (or the central bankers) to say that these savings would be much better spent on infrastructure projects and other investments? If the types of investments that Carliner has in mind would be better investments, what is stopping the gubmnts of those countries from borrowing and making the investments, especially if they do have what he calls a "predilection for state-led development"? Do they have to pay an interest rate premium? If so, quite likely that is a risk premium that efficiently reflects the markets' perceptions of the risk differentials between those projects and US Treasuries.
- I keep asking myself, "If I were in control in one of these economies, under what conditions would I rather hold US Treasuries than invest in infrastructure?" I would have to be skeptical about the efficacy of such projects, or I might be concerned about future uncertainties in the markets.
But I may have missed something, so read the whole piece.