Friday, 17 June 2011

Lovely post on savings imbalances

Michael Pettis has a lovely post on savings imbalances and how countries suffer because of choices which are forced upon them due to the choices and the policies of other countries.


"It might help to explain why this is the case if we call all the high-savings countries “Germany” and all the high-consuming countries “Spain”.  Giving them these names may seem a little provocative, and will probably generate some hate mail, but I guess less so than calling them “China” and “the US”.
It turns out that domestic policies by the German government can explain both high German savings and low Spanish savings.  For example assume that Germany has an undervalued currency, low wages relative to productivity, high explicit or hidden consumption or income taxes (repressed interest rates, for example, or environmental degradation), and high quality infrastructure subsidized by these taxes."



A nice easy read here