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The 'global savings glut': trade surpluses recycled into US assets
Bernanke speech, Mar 2005· Theory or school
Experts disagreeEconomists or investors genuinely disagree.
Ben Bernanke's 2005 thesis that surplus saving abroad, not just US policy, drove US trade deficits and low long-term rates.
See it on the Money & Finance map →How it works
In a March 2005 speech, Fed governor Ben Bernanke argued that after the 1997 crisis, Asian economies and oil exporters saved far more than they invested at home. Their surpluses flowed into US Treasuries and agency bonds, financing the US current-account deficit and holding long-term rates down even as the Fed hiked, the 'conundrum' Alan Greenspan had noted that February. Critics, notably at the BIS, argue gross flows mattered more: European banks borrowed dollars to buy US mortgage bonds, a 'banking glut'.
Why it matters
It shaped how policymakers read the 2000s, treating low rates and the housing boom as partly global in origin, not only the result of Fed or Wall Street choices.
Facts, rules and data
The speech on the Fed's website, Treasury TIC data, and papers by Bernanke and co-authors (2011), Borio and Disyatat (BIS, 2011) and Hyun Song Shin (2012).
Debates and risks
How much of the long decline in interest rates came from foreign saving versus Fed policy, aging populations or demand for safe assets is still debated.
Connections (3)
▸The 'global savings glut': trade surpluses recycled into US assets was named in a 2005 speech by Ben Bernanke, Fed chair 2006–2014Fact, law or data
The connection
As a Fed governor, Bernanke used the phrase 'global saving glut' in a March 2005 lecture, arguing that excess saving in Asia and oil-exporting countries, not just US budget deficits, explained the large US current-account deficit and low long-term rates. He became Fed chair in February 2006.
When and why
Sandridge Lecture to the Virginia Association of Economists, Richmond, March 10, 2005.
How we know
The speech text is on the Fed's website; Bernanke revisited the idea in a 2011 paper with Fed co-authors.
Debates and risks
Bernanke's own later research stressed European banks' role, leaving open how much weight the Asian glut deserves.
▸The 'global savings glut': trade surpluses recycled into US assets is blamed by some for fueling Subprime mortgages and the housing bubbleExperts disagree
The connection
The argument: foreign savings poured into US safe assets, pushing down long-term and mortgage rates, and demand for AAA-rated securities led Wall Street to manufacture them from subprime loans. Critics answer that Asian money mostly bought Treasuries and agency bonds, while European banks and lax US lending standards drove subprime securities.
When and why
United States, about 2002–2007, as the current-account deficit reached about 6% of GDP in 2006.
How solid is the link?
TIC data on foreign purchases; Bernanke, Bertaut, DeMarco and Kamin (2011) traced much private mortgage-bond buying to European investors.
Debates and risks
How to weigh foreign capital against Fed policy, weak regulation and borrower and lender behavior remains debated.
▸The 'global savings glut': trade surpluses recycled into US assets builds on the older pattern of Petrodollar recycling: oil surpluses lent back to the worldMainstream view
The connection
In the 1970s, OPEC surpluses deposited in Western banks were lent on, mainly to Latin American governments. In the 2000s, Asian and oil surpluses again flowed outward, but this time chiefly into US Treasuries and agency bonds, making the US government and homebuyers the end borrowers.
When and why
1974–1982 for the first wave; about 1998–2007 for the second.
How solid is the link?
BIS and IMF data on surplus recycling, and Treasury TIC data on foreign purchases in the 2000s.
Debates and risks
The first wave ended in the 1982 Latin American debt crisis; whether the second wave's ending was the 2008 crisis is debated.