Galloping Consumption: China's Savings Glut Part I

Commodity News Center ^ | 8/26/09 | Adrian Ash

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"They rush about in disorder, anxious slaves of the three M's - the moment, the mode, and the mob. They see too well their want of dignity and fitness, and need a false elegance to hide their galloping consumption..."

- Friedrich Nietzsche, Thoughts Out of Season II: The Use & Abuse of History (1874)

NOW THE banking crisis is over - "Bernanke stays put, home prices up," as Fox News reports - the career academics who failed to spot and prevent it can get back to fretting about the most macro of tasks:

How to rebalance the global economy?

The rich West spends, emerging Asia saves. For global trade, this means the West (or rather the US, UK and most of Western Europe) goes shopping for what Asia (and Germany) makes. Which in turn means poor Asia in fact funds this consumption, hoarding Treasury bonds as I.O.U's, representing the ultimate in vendor finance.

Like the subprime and mortgage-bond bubbles, this situation will run for as long as it runs. Then one day, quite suddenly, it won't, thanks either to Western consumers refusing to wear further debt, or Asian savers refusing to hoard any more paper. Classical economics says Mr.Market could also call time, driving a sharp decline in the Dollar and Sterling and making Asian imports too expensive for West consumers to buy. (The Euro's more sticky; the single currency covers both export-rich Germany and chronic trade-debtor Spain. But that's another crisis-in-waiting altogether...)