In an article in Saturday’s WSJ, asian officials dispute the premise of the ‘savings glut theory’ as a factor that helped cause the global financial crisis. The theory implies that in the past decade, as a consequence of strong saving motives and the low prospective returns to domestic investment, the developed economies (outside the U.S.) as a group have had a tendency to run current account surpluses and thus to lend abroad. The theory by definition implies a surplus relative to a deficit in something else. Asian officials call the ‘asian savings glut’ notion, baseless – and argue instead that lax of U.S. financial regulation is the main contributing factor that caused the global financial system’s collapse.
“Asians financed cheap consumption in the rest of the world, this is what they say. This is something I just cannot understand,” Supachai Panitchpakdi, the head of the United Nations Conference on Trade and Development, and a former Thai government official, told a conference Friday. “This is another theory we have to debunk. Asians have not been over-saving and under-consuming.”
The real difference between Asians and Americans, Mr. Supachai argued, is that American consumers borrowed heavily to finance their spending while those in Asian nations mostly didn’t. He said that consumption levels in Asia are “normal,” averaging about 40% of gross domestic product. He acknowledged that household consumption in China is relatively low, at 36% of GDP. But he said that’s because growth in investment and exports have been very strong, not because consumption has been weak.
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The crisis originated from Wall Street and many indisputable facts have established that micro factors had played an overwhelmingly important role in causing this crisis,” [Chinese central bank governor Zhou Xiaochuan said], naming issues like accounting rules, credit rating agencies, securitized lending and lax standards at banks.
While the savings glut theory does provide a basis for a discussion of recent changes in global saving and financial flows, there’s no legitimate substantiation, data-wise that is, that would support the theory itself. In fact, a 2005 IMF study demonstrates how low world savings rates, not just asian, were relative to GDP. Comparing global savings rates during this period to those of the ’70s and ’80s supports that argument.
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