No end to global savings glut
It depresses real rate of interest and may limit the extent to which interest rates can rise
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READERS' reactions to the "three gluts" framework I discussed in a commentary in The Business Times on Aug 22 suggest that the thesis (first formulated by former Federal Reserve chairman Ben Bernanke a decade ago) that a secular global savings glut is largely responsible for low long-term interest rates remains controversial and may require further elaboration.
To recap, the term "savings glut" is the short code for a situation in which the world's desired saving exceeds desired investment. This depresses the natural real rate of interest, which is the mechanism that brings savers' and investors' diverging desires into equilibrium. While there are a host of potential reasons for the ex-ante excess supply of saving over investment, here is my top-five list again:
Quantifying the impact of the global savings glut
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