ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Global Dollar Glut

The developments in the global economy since the 1990s are not an outcome of a "global saving glut" as postulated by Ben Bernanke in 2005, but the consequence of fl ows from the "global dollar glut". This glut led to the 2007 financial crisis. Quantitative easing is brewing the crisis of tomorrow.

Global imbalances – certain new patterns of trade imbalances and financial flows in the global economy – emerged towards the end of the 1990s and have since grown in importance. On the one hand, the United States (US) has been running persistently large current account deficits and has transformed itself from a net lender into a net borrower in the global financial market. On the other hand, a set of emerging economies in east Asia and a set of petroleum exporting countries across the world have been running persistently large current account surpluses and have transformed themselves from net borrowers to net lenders in the global financial market.

In 1996, the US had a current account deficit of $125 billion (1.6% of the gross domestic product (GDP)). This grew to $416 billion (4.2% of GDP) in 2000 and further to $801 billion (6% of GDP) in 2006. It declined thereafter but remained high. In 2011, it was $466 billion or 3.1% of GDP. On the other side, the combined current account surplus of six east Asian economies (China, Hong Kong, Indonesia, Republic of Korea, Taiwan and Thailand) was $87 billion (3.2% of combined GDP) in 2000, $369 billion (7.2% of combined GDP) in 2006 and $387 billion (3.6% of GDP) in 2011. And the combined current account surplus of six petroleum exporting countries (Kuwait, Qatar, Russian Federation, Saudi Arabia, United Arab Emirates and Venezuela) was $109 billion (15.3% of combined GDP) in 2000, $317 billion (17.1% of combined GDP) in 2006 and $438 billion (13.3% of combined GDP) in 2011.

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