[A-List] A global savings glut?

["Jurriaan Bendien" <adsl675281@xxxxxxxxxx>]

Henry,

you wrote:

> Credit expansion increases asset value which maintains the debt-equity
> ratio
even when debt is increased by the credit expansion.

Quite. I guess a simple macroeconomic view is that production generates
incomes; what is not spent on consumption from these incomes is saved; and
these savings constitute the potential investment fund. In this sense, the
CBO comments:

"Because income is either consumed or saved, and spending is either
consumption or investment, the current-account balance equivalently measures
the extent to which the United States saves more than it invests (see Table
1). Hence, another way of viewing the fall in the current-account balance
since 1991 is to observe that saving in the United States fell increasingly
short of the amount necessary to finance domestic investment."
http://www.cbo.gov/showdoc.cfm?index=5722&sequence=0

In which case, if there is a problem, it is the "low savings rate". But in
reality, as you point out, what happens is that all sorts of additional
purchasing power is created, in the public and private domestic sectors, by
the expansion of credit money not directly related to value of production
and the incomes generated thereby. This actually contributes to a low
domestic savings rate.

However, what if, outside the US, the typical pattern is that the level of
total investment falls significantly below total savings, even as both tend
to stagnate or even decline, i.e. less of the income generated is invested
than is saved (savings defined as total income generated less final
consumption expenditure). Then you'd have a glut of capital. Admittedly, the
argument depends on how you define savings and investment.

You argue "In the dollar economy, there is no savings, period.", i.e. there
is only the expansion and contraction of credit money by financial
institutions. But presumably the transfer of wealth this makes possible, in
the last instance still depends on new incomes generated by production, and
is affected by how much is saved, or spent?

Jurriaan