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The dark side of the savings glut

It's widely believed that the past few years have seen a savings glut - a huge supply of savings, largely from Asia. This explains several important facts about the world economy: the surprising ease with which the US financed its current account deficit; banks' rush to supply mortgage securities to meet a high demand for high-yielding assets; and low real interest rates even in the face of massive government borrowing.

There is, however, an important aspect of the story of the savings glut that often gets overlooked: if there is an excess supply of savings, what is the excess relative to?

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By Chris Dillow,
05 January 2010

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