Editor's Choice The Making of America’s Imbalances

Moritz Schularick and Paul Wachtel

CESifo Economic Studies, 2014, vol. 60, issue 1, 62-88

Abstract: This article tracks the history of sectoral saving and borrowing in the US economy over the past 50 years. We show that the financial imbalances that erupted in the financial crisis of 2008 were long in the making and preceded the emergence of global imbalances in the 2000s. These new dynamics in the household sector were already apparent in the 1990s, long before the deterioration in the US government balance or the current account balance and long before the arrival on the international stage of Chinese reserve accumulation. The record low household savings rate in the past decade was the product of two separate trends: a sharp fall in the asset acquisition of American households in the 1990s, and an explosion of mortgage borrowing in the 2000s. The American credit boom of the 2000s had few direct links to reserve accumulation in emerging markets. The mortgage boom was financed by the US financial sector, which intermediated foreign funds from ‘private’ sources. (JEL codes: E21, E22, F32, N10, N12)

Date: 2014
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Citations: View citations in EconPapers (3)

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