Tuesday, June 28, 2005

Today's low mortgage rates and world-wide "savings glut" are due to corporate savings, says JP Morgan.

Alan Greenspan has called today's historic low long-term interest rates a "conumdrum". Ben Bernarke has said they result from a world-wide "savings glut".

Now JP Morgan narrows it down to a corporate savings glut...
... in the period from 2000 to 2004, corporate savings in the G6 economies increased by $1,091 billion (2.7% of global GDP)
This after corporate savings declined by $730 billion over the prior four years, 1996 to 2000 -- producing a $1.8 trillion swing in just the G6 countries. With a similar course seen in the developing nations. That'll do it!

This huge surge in corporate savings has of course sapped world economic growth, and what economic growth there's been has in no small part been due to offsetting increases in government dis-saving (deficit increases) -- starting, of course, with the Bush tax cut program. And although that didn't have any counter-cyclical intent...

de facto, it was one of the most perfectly timed pieces of fiscal activism ever seen.
What's coming next? As they say, read the whole thing (.pdf).

Geeze, and everyone's been saying it's been the Chinese. [Via Arnold Kling.]