'Chimerica' and the Global Asset Market Boom*Niall Ferguson and Moritz Schularick () International Finance, 2007, vol. 10, issue 3, pages 215-239 Abstract: Over the past five years the world has witnessed a spectacular boom in asset prices. This paper reviews different explanations for this phenomenon, and argues that future financial historians will point to the divergence between high returns on capital and the low cost of capital, not to excess liquidity or asset shortage, as the driving force in global asset markets. The integration of the massive Asian labour force into the world economy has significantly increased global returns on capital while the cost of capital as measured by long-term real interest rates has not increased, but has actually fallen. We label this two-sided phenomenon 'Chimerica' because it is in large measure consequence of the symbiotic economic relationship that has developed between the People's Republic of China and the United States of America. Not only has plentiful Chinese and Asian labour increased global returns to capital; Chinese excess savings have also depressed US and global interest rates. We show that the Chinese 'savings glut' was not primarily a function of precautionary household behaviour, but of surging corporate profits in China due to increasing exchange rate undervaluation. Copyright 2007 Blackwell Publishing Ltd Date: 2007 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:bla:intfin:v:10:y:2007:i:3:p:215-239 Ordering information: This journal article can be ordered from Access Statistics for this article International Finance is edited by Benn Steil More articles in International Finance from Blackwell Publishing |
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