Buyers, Not Savers, Caused America’s Deficit

Financial analysts scrutinize Alan Greenspan’s 2007 autobiography, “The Age of Turbulence,” for any clues about the current economic downturn. Analyst and author Richard Duncan takes issue with the chapter in Greenspan’s book on current accounts and debt, noting that that the former chairman of the US Federal Reserve argues, “High savings and unattractive investments at home, occurring at a time of declining ‘home bias’ in investment, resulted in a massive increase in investments from those countries into US assets.” Duncan then proceeds to argue that Greenspan got it wrong and that “the US trade deficit has been caused by free trade with low-wage countries and financed by paper-money creation by the central banks of the surplus countries.” Duncan disagrees with Greenspan that the US current account deficit does not carry immediate priority. Still, both men share concerns about growing imbalances, debt rising faster than assets, fiscal irresponsibility and painful adjustments. – YaleGlobal