Stiglitz on China’s Savings Hoard

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From the WSJ’s China Journal blog:

Blame the class of ’97, including its valedictorian China.

For Nobel laureate Joseph Stiglitz, a starting point for rebuilding the world economy is recognizing how a “global insufficiency of demand” set the stage for a crisis in the first place. In a talk Sunday in Shanghai, Mr. Stiglitz blamed risk taking by the U.S. Federal Reserve, along with U.S. regulators, as setting up the U.S. economy — and by extension the world — for a collapse.

That collapse was set in motion years ago, when the U.S. was keeping interest rates low and credit abundant for consumers and home buyers. A reason: authorities were working double-time to bolster demand to offset how weak it was elsewhere in the world.

Too many countries began saving too much instead of spending at home, and usually that savings took the form of U.S. Treasury bonds, he said. That gave Washington the world’s cash to play with, while deeper problems in other nations, such as the widening gap between rich and poor, went unaddressed.

Mr. Stiglitz calls the savings glut nations graduates of “the class of ’97.”

Read the full article here...

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