PHILADELPHIA -- U.S. "Fed" Governor Ben Bernanke has blamed net inflows of capital from the rest of the world, especially China, for a global savings glut that is driving up the U.S. current account deficit. Unfortunately, some commentators have echoed this seemingly plausible but outrageously silly idea.
For example, an HSBC economist in Hong Kong, Qu Hongbin, bought into this foolish analysis to identify China as harming others and itself by having so many thrifty people. And the co-head of European economics at Bank of America in London believes that savings are providing excess liquidity that has pushed up prices of nonfinancial assets. When central bankers offer analysis that ignores the effect of an ultraloose monetary policy, financial institutions require their highly paid analysts to be more vigilant.
In all events, the observations cited above reflect a belief that China must lower its domestic savings rate to fuel its economic growth and correct its trade imbalance. Doubtless, part of their credulity is based on China's domestic savings rate -- 46 percent of earnings.