Europe,and,Asia,Hoard,Cash,Eco ecommerce As Europe and Asia Hoard Cash, Economists See Echoes of Cris
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European and Asian investors have been rushing into the United States bond market, spurred by a global glut of savings that has reached record levels.Running from near-zero interest rates at home, foreign buyers are piling into the booming market for corporate bonds, including high-grade debt securities issued by the likes of IBM and General Electric and riskier fare churned out by energy and telecommunications companies.A growing number of economists are concerned that this flood of money may inflate the value of these securities well beyond what they are worth, potentially leading to a market bubble that eventually bursts.More broadly, however, these economists fear that an excess of ready cash in Europe and Asia is on the rise, which could keep a damper on global growth prospects.That is because the cash, instead of being spent on building bridges in, say, Germany, or individual shopping sprees in China and Japan, is accumulating and being recycled into global capital markets, keeping interest rates artificially low as investors chase after returns.And again, economists say, the burden is placed on the United States, with its still fragile economy, to be the growth carbon steel pipe engine for the world.“Asia and Europe keep exporting their savings to the rest of the world,” said Brad W. Setser, an expert in global financial flows who worked at the United States Treasury from 2011 to 2015. “All this money sloshing around looking for a home is not healthy — it indicates a real lack of demand in other parts of the global economy.”The surge in flows echoes a wave of investment in the years right before the financial crisis, when mostly European investors snapped up billions of dollars of mortgage-backed securities before the American housing market imploded.The current numbers are also arresting.According to Mr. Setser’s figures, about $750 billion of private money has poured into the United States in the last two years alone. About $500 billion, he calculates, reflects European and Asian investors buying United States Treasury securities, bonds issued by Fannie Mae and debt issued by American companies.The rest comes from American institutional investors unloading their zero-returning European bonds and looking for some extra yield closer to home.The culprit, Mr. Setser argues in a new paper for the Council on Foreign Relations, where he is a senior fellow, is the biggest global glut of savings ever, driven by cash-hoarding in counties like China, Taiwan and South Korea.“There is a glut, and the glut isn’t healthy,” Mr. Setser said.The philosophical grandfather of this global savings glut is Ben S. Bernanke, former chairman of the Federal Reserve, who coined the phrase in 2005, before he became chairman.There are economic theories that daze and confuse, thanks to their opacity. And then there are a few that define a moment in time by explaining why asset markets overreach and implode.In September 2007, as the financial crisis was beginning to take shape, Mr. Bernanke gave a speech in Berlin in which he warned of the dangers that excessive global savings posed to the United States economy.Mr. Bernanke cautioned that an accumulating cash pile in fast-growing countries like China was keeping global interest rates low and steering money into risky investments.Within months, investment banks in the United States began their death march as the once-soaring welded steel pipe market for mortgage securities collapsed.
Europe,and,Asia,Hoard,Cash,Eco