The Theory of the Global “Savings Glut” Prabhat Patnaik

For some time now, Mr. Ben Bernanke, Chairman of the Federal Reserve Board, has been arguing that the substantial increase in the U.S. current account deficit, the swing from moderate deficits to large surpluses in “emerging-market countries”, and the significant decline in long-term real interest rates, since 1996, are the fall-out of a world “savings glut”. Some, especially authors from the IMF stable, have gone further to explicitly link this “savings glut” to the world financial crisis. The present paper is devoted to a close examination of this “savings glut” theory.

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