Analysis Of Ben Bernanke 's Global Saving Glut ' View Of Global Imbalances

2008 Economics Noble Prize winner and Princeton University professor, Paul Krugman, translates the roots of modern and prior financial crisis economics. In his book, The Return of Depression Economics and The Crisis of 2008, Krugman first educates the reader of historical and foreign financial crises which allows for a deeper understanding of the modern financial system. The context provided from the historical analysis proves to be a crucial prospective in such a way that the rest of Krugman’s narrative about modern finance continually relates back to the historical analysis. From there, Krugman analyzes and updates his prior studies done on the Asian financial crisis. He then applies his knowledge from historical events to the modern day financial struggles and argues his opinion about how and why our financial world operates the way it does. Krugman explains his perspective that the world believed that depression economics was no longer a problem, however the Asian crisis, Japan 's liquidity trap and the Latin American crisis having acted as warning signals to modern market struggles. Thus he says that this subject needs further examination and more resources should be poured into it. For Krugman, Depression Economics is still a relevant problem and should be further studied.

In our textbook, “Principles of Macroeconomics,” the relationship between debt and deficit is described. A deficit is a shortfall in revenue for a particular year’s budget. Whereas, a debt is the total of all accumulated and unpaid deficits. An outlay is an amount of money spent on something. The federal government outlays are divided into government outlays and mandatory outlays. Government outlays are the part of the government budget that includes both spending and transfer payments. Mandatory outlays constitute government spending that is determined by ongoing long term obligations. Of the two, mandatory outlays is the largest portion of the federal budget. Lastly, Discretionary outlays compromise government spending that can be altered when the government is setting its annual budget. A budget surplus occurs when revenue exceeds outlays. A budget deficit occurs when government outlays exceed revenue.

In Frontline’s The Meltdown, the causes of the stock market crash of 2008 came into discussion. The topics regarding Bear Stearns, the Lehman Brothers’ and their collapse, and the huge bailout made in results to the market crash. There were great points being made on the mistakes Henry Paulson and Ben Bernanke did not view from their perspective, which in turns were the problems that made up the crash.

At the beginning of his article, he writes about the global economy in the midst of a “second banking crisis” (Skidelsky 2012, p. 7). He believes that in order for the economy to become balanced there needs to be an overarching power that is in control of the global economy. Such as the Keynesian theory

A5-11. Using diagrams for aggregate expenditures (AE) and aggregate demand and supply (AD-AS), show the short

A deficit in economics is when there is a surplus over expenditures in a certain time period. Here in the article, the government spent more than what the budget allowed. The government controls government spending and doesn’t affect investments and consumption.

Deficit spending is spending that decreases or balances out a surplus. Normally it is referred to as situations where expenditures surpass revenues, of you are spending more than you earn, imports surpass exports and liabilities surpass assets. Normally we see the term “federal government debt” tied to deficit spending as well, which is the total amount of money the government has borrowed in order to reduce the deficit (Outspeaking.com, 2015). Commonly, deficits happen due to the economic decline of a society; as unemployment surges, the gross income of the population drops; meaning that, if a country does not engage a flat tax rate, but instead the tax rate varies based upon revenue of the individual, the country will not accumulate as much revenue from the tax payers as it had before.

In examining the United States economic health, it is important to consider the current account deficits. The question as to whether or not the United States can run the current deficit accounts indefinitely. Looking at the EU and its balance of payments, the question arises again as to whether or not they can maintain the deficits they are experiencing, indefinitely. Globally speaking, the United States does hold a unique position, but does that position allow the country the ability to consistently run the deficits it currently maintains.

Throughout the novel, The Next Decade, there is a lack of source to be found which gives the author no credibility to his thesis. In the George Friedman makes very interesting and unusual claims in the book. These claims range in relevance and validity, such as the 2008 recession didn’t have as large financial

“Ultimately, market participants themselves must address the fundamental sources of financial strains – through deleveraging, raising new capital and improving risk management.”1 – Ben Bernanke

In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary

I do not agree with the view provided in the article. Governments and policy makers must enhance the emerging economic growth prospects in order to adjust financial markets and globalization. The current era of globalization has been characterized with financial imbalances and governments must learn to navigate a financial landscape that is fragile. Without the government intervention, the recent economic imbalances will continue to make uneven shifts in the market policies and mechanisms. When governments attempt to fight global imbalances, they are likely to confront a new phase of opportunities and risks (Hufbauer & Shet, 2006). The threat of a global downturn could be increased if economies suffer slumps or remain lethargic. Governments must effectively implement financial policies in order to stop the threat of another global economic crisis. Without any government intervention, there will be a reverse in the flow of net capital and investment will be drained away from developed nations thus triggering protectionism. Inequality could widen and even persist. With the limping of the Doha Round, the free trade environment could face increasing pressure. Economic and political reforms may halt, stall, or even reverse the current progress. The government needs to devote time and energy to correct the current financial imbalance rather than risk

It is often suggested that the large current account deficit poses a serious financing problem for the United States. Each year, the lament goes, the United States must attract net inflows of capital sufficient to "cover" the huge current shortfall. But this proposition gets the logic backward: the U.S. deficit is "financed" by net capital inflows only in an ex post accounting sense. In economic terms it is more nearly correct to say that net capital inflows cause the current account deficit. (p. 218)

The current account records transactions that pertain to goods, services, and income receipts (Hill and Hult, 2016). For the year 2015, the current account has a deficit of 8.1 billion dollars, or -3.1 percent when expressed as a percentage of GDP (Balance of Payments, 2016). The capital account reflects one-time changes in the stock of assets, while the financial account reflects transactions that involve the purchase or sale of assets (Hill and Hult, 2016). In New Zealand, the capital account was 383 million in 2015, which was an increase of over 370 million in 2014. The financial account was -1.47 billion, which was down over three billion from 2014 (Balance of Payments, 2016).

Current Account Deficit. A rise in the ratio of the current account deficit to GDP is generally associated with large external capital inflows that are intermediated by the domestic financial system and could facilitate asset price and credit booms. A large external current account deficit could signal vulnerability to a currency crisis with negative implications for the liquidity of the financial system, especially if the deficit is financed by short-term portfolio capital inflows. Financial crises that have