This website uses cookies to ensure you have the best experience. Learn more

Global Savings Essay

898 words - 4 pages

Question 1:
(i) Briefly, what is the issue? What impact does it have on different regions’ GDP, prices, exchange rates and Interest rates?
The issue is an unprecedented level of world surplus savings (especially in the Asian economies) that faced with weak investment opportunities serve to fund a growing US current account deficit which creates dangerous world imbalances.
The Euro-zone and Japan have slow GDP growth and their savings increase due to a lack of confidence in both financial and social security systems as well as the inability of the private sector to find investments. Also we see increasing fiscal deficits, very low real interest rates and low inflation. The Euro appreciated vs. USD, creating loss of export competitiveness that added up to a weak demand. The yen has been down in real terms (to avoid deflation).

Therefore, most of the countries (specially Asia and specifically China) are using this surplus to lend money to the US, thus making the US both borrower and spender of last resort (to finance mainly US consumption, its current account deficit and to some extent its fiscal deficit). Furthermore, any FDIs from Europe and the US into developing Asian economies are recycled (although the Asian countries keep the technology) into Asian Central Banks’ purchase of US Treasuries. The banks also use this as a mechanism to maintain export competitiveness by fixing their currency against the USD, which increases their foreign reserve accumulations.

Tight monetary and fiscal policies as well as direct interventions in credit markets have helped to sustain this high domestic savings. China’s economic growth rate is 9%, due to: increasing exports & spending in capital goods and construction; very low interest rates; increasing (but still low) inflation and real exchange rate depreciation.

(ii) Why does it put the world economy at high risk? What is the worst possible outcome?

The US current account deficit has increased to 6.5% of GDP, because of low and falling savings as well as private spending rising faster than disposable income. The US net external liabilities have also increased to levels that had never been seen before. Thus, in order to achieve a growth of output in line with full employment, US domestic demand needs to grow more than GDP (since imports grow also 6% more than exports). Therefore the US has increased its current account deficit to adjust the current account surplus of the rest of the world. The alternative would have been not to dispose of all those savings causing a global slump.
But how long will both the US current account deficit and Asian countries exchange rate + saving & lending policies, be sustainable? Not long, because:
o     In the US: “What can’t go on, won’t”
o     It is impossible to bridge the current account deficit through the growth of exports over imports, because at current real exchange rate, imports grow twice as fast as exports...

Find Another Essay On Global savings

Global Warming Essay

934 words - 4 pages meet new energy efficiency standards that maximise energy savings. Homes should also instal energy efficiency cooling, heating, and light systems. You could save from seven hundred to eleven hundred dollars a year at your home with these changes which are small and we can all do. There is no single solution to stopping or reducing global warming. Switching to low carbon fuels and reducing vehicle miles traveled through smart growth and more

Global Outsourcing Essay

1377 words - 6 pages Their British Counterparts £ 50,000 were paid. Based on my research, the global outsourcing benefits that can be gained by companies through outsourcing can help based on cost saving and increasing productivity, outsourcing elevates the standard of living, expertise, and people have access to fresh ideas and resources. The first comparative advantage is the costs savings and increasing productivity. Outsourcing their paid only cheaper than the

Global Cities

1162 words - 5 pages Global Cities Sassen’s theory on Global Cities touches various points. First, she describes that these global cities, New York, London and Tokyo have become major gathering points for large top firms. They have become hubs, financial centers, yet they have not obtained these titles and statures single handedly by the firms that have established themselves in these global cities. These three cities all come from different backgrounds yet they

Global Warming

844 words - 3 pages energy efficient lighting. Buying home appliance that is labeled as high in energy savings, because all major appliances are all day and night. Improving vehicles fuel efficiency by buying a hybrid car because it cuts down on pollution by 30% or more. Driving less would also be one way it would help global warming by taking public transports like taxi, bus, trains, riding a bike, and walking. Water conservation would be another way to help

Global Warming: The Harmful Reality

948 words - 4 pages found top ten personal solutions for global warming by reducing emissions, three of which I followed through very well and made the right choices. One is buying the next car with the best fuel economy and better gas mileage as my family purchased the Toyota Prius C hybrid model. Second is changing most of my light bulbs to LED lights, which use less than fifteen percent of electricity and give more than one hundred dollars in savings. Third, is


1108 words - 5 pages beneficial. Its products could be distributed through channels with global reach. The company would realize more diversification in the areas of beverages. Profitability may improve through large cost savings from common factors, which might eliminate the need for any duplication of work and waste of resources. · Cons. There is a risk that Quaker Oats could be undervalued. There is a high potential for management disputes in areas such

Global Warming

840 words - 3 pages . Buying home appliance that is labeled as high in energy savings, because all major appliances are all day and night.Improving vehicles fuel efficiency by buying a hybrid car because it cuts down on pollution by 30% or more. Driving less would also be one way it would help global warming by taking public transports like taxi, bus, trains, riding a bike, and walking. Water conservation would be another way to help global warming by taking short

Outsourcing: Staying Competitive In The Global Market

1722 words - 7 pages paper will address what key elements companies in this situation need to address, such as, quality of customer service provided, security of confidential information, and the possibilities of cost savings, in order to be sure that outsourcing is the best solution for their company. Outsourcing to Stay Competitive For companies to stay competitive in today's global market, many are facing the decision to outsource sectors of their company. By

Problem Solution: Global Communications

3531 words - 14 pages reductions and 3) reducing staffing levels.By investing in foreign markets Global Communications can take advantage of cost savings through reduction in staffing levels. It can also take advantage of productivity improvements, considering one persons salary would pay for more than 5 employees abroad.For example, in 2002 Delta Airlines cut 16,000 jobs and 72 aircraft from its fleet. This resulted in a cost savings of $1.5 billion. Forced by a downturn in

Global Value Chain Issues and Trends

1213 words - 5 pages . Two concepts that organizations can implement and use to their advantage are ISO 9000 and Six Sigma. Gaining the required certifications allow organizations to have their management team focus on the impacts to the business in areas such as globalization and outsourcing. Implementing both ISO 9000 and Six Sigma will give the business a greater competitive advantage in the global community and against their competitors. These steps help in

The cause and impacts of high CAD - Year 12 economics - Essay

1654 words - 7 pages overseas. Australia’s CAD averages between -3% to -6% and can be attributed to a variety of cyclical and structural factors which impacts both the Balance on Goods and Services (BOGS) and the Net Primary Income (NPY) account and this includes international competitiveness, a narrow export base and the savings-investment gap. The CAD holds many negative economic implications for the Australian economy in particular growing foreign liabilities

Similar Essays

Discuss Household Savings Essay

1399 words - 6 pages household savings.Reference ListBeck, T., A. Levine and N. Loayza; (2000); Finance and the Sources of Growth; Journal of Financial Economics; Vol. 58; pp 261-300Kliesen,L (2005,July). Do We Have a Saving Crisis?. Regional Economist,4,6. Retrieved April 23,2006, from the University of Auckland: Proquest database.Mcgee,R(2006,March). The global savings paradox. American Bankers Association,98,56. Retrieved April 23,2006, from the University of Auckland: Proquest database.Skilling.D (2005,Feburary). Home is where the money is. The New Zealand Institute. Retrieved April 23,2006, from the World Wide Web:

Teleleader Business Case Study

1074 words - 4 pages over Mexico's2. Teleleader will enjoy a tax vacation period of 3-5 years beginning immediately upon opening3. Due to agreements made with the Malaysian government Teleleader will enjoy cost savings of 9-14% on European exports, this converts into a 3-8% overall cost savings.4. Direct labor costs are on average 34% less than those in Mexico.What are the advantages of locating in Malaysia?Global coverage: Locating the second manufacturing plant in

Are The Forces That Influence China's Trade Surplus Over U.S. Actualy Good For Both Countries?

878 words - 4 pages the forces creating the China- U.S bilateral trade surplus. Morrison (2009, pp 2) as well as Lardy (2008, pp 12) are concerned about how the Chinese government is overcoming the current global crisis by the manipulation of its currency. In addition, another fundamental cause of China trade surplus with U.S is the Chinese excess savings (ART 9 PP 5, ART 7 PP9) 1. Exchange rate manipulation ´´Currency manipulation is the cause of the U.S. trade

The Uk Government Position On Energy Efficiency And Conservation The Past Thirty Years

1014 words - 4 pages comfortably, an admirably step but the reduction of fuel poverty cannot be used as an argument for energy efficiency.ConclusionPerhaps it should be the fuel rich who should be encouraged to produce the energy savings by introducing a luxury tax on energy use above that required to live an adequate standard of living. Why should future generations have to deal and pay with the problems of global warming because energy is cheap today, which helps the fuel rich for instance to heat his swimming pool.