This is an interesting observation from the Economist,
``The finances of banks are a mirror of the economies where they are based. In emerging markets, the surplus of customer deposits over loans (ie, excess savings) at listed banks was about $1.6 trillion in 2008, compared with a deficit of about $1.9 trillion at rich-world banks. Banks in emerging markets, which have vast branch networks to suck in deposits from thrifty families and companies, park their surplus with the state, by buying government bonds or keeping it in central banks. The state in turn acts as the international recycling agent for those excess savings: it lends them to Western countries through its foreign reserves or through a sovereign-wealth fund. Meanwhile, overextended Western banks do the exact opposite: they borrow from capital markets to plug the hole created by having more loans than deposits. In 2009, the funding gap was smaller, reflecting the slow rebalancing of Western banks' finances." (all bold highlights mine)
My comment:
The above shows the following:
-trade imbalances are offset by capital account transfers [see US-China Trade Imbalance? Where?]
-governments are shown here to be very inefficient intermediaries in the allocation of resources (finance or real). Allocations are fundamentally politically motivated, e.g. in the US, the homeownership bias in the 1990s to 2007 (ergo the bubble bust of 2008); today, the focus is on deficit spending.
-moral hazard from sustained subsidies to government (as recycling mechanism) has partly caused bubbles and will likely continue to do so.
-the overall problem basically seems due to the architecture of our monetary system, which have been premised on a cartelized banking system that revolves around central banking.
``The finances of banks are a mirror of the economies where they are based. In emerging markets, the surplus of customer deposits over loans (ie, excess savings) at listed banks was about $1.6 trillion in 2008, compared with a deficit of about $1.9 trillion at rich-world banks. Banks in emerging markets, which have vast branch networks to suck in deposits from thrifty families and companies, park their surplus with the state, by buying government bonds or keeping it in central banks. The state in turn acts as the international recycling agent for those excess savings: it lends them to Western countries through its foreign reserves or through a sovereign-wealth fund. Meanwhile, overextended Western banks do the exact opposite: they borrow from capital markets to plug the hole created by having more loans than deposits. In 2009, the funding gap was smaller, reflecting the slow rebalancing of Western banks' finances." (all bold highlights mine)
My comment:
The above shows the following:
-trade imbalances are offset by capital account transfers [see US-China Trade Imbalance? Where?]
-governments are shown here to be very inefficient intermediaries in the allocation of resources (finance or real). Allocations are fundamentally politically motivated, e.g. in the US, the homeownership bias in the 1990s to 2007 (ergo the bubble bust of 2008); today, the focus is on deficit spending.
-moral hazard from sustained subsidies to government (as recycling mechanism) has partly caused bubbles and will likely continue to do so.
-the overall problem basically seems due to the architecture of our monetary system, which have been premised on a cartelized banking system that revolves around central banking.
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