THE elevated level of savings in Asia and global payments imbalances had nothing to do with the global financial crisis or the unusually low world interest rates that preceded it.
The argument that they did, advanced by US Federal Reserve chairman Ben Bernanke, has diverted attention from the root cause, which is the unconstrained ability of financial institutions to create credit on a global basis, according to an explosive new paper by the research director at the Bank for International Settlements, Claudio Borio.
He says that without global co-ordination of monetary policy, central banks will be powerless to prevent the build-up of new excesses, and he suggests that the rapid capital inflows to emerging countries at the moment represent such a threat.
Bernanke's claim that Asia was to blame for the extraordinarily low bond rates during the first half of the "noughties", as well as the US's soaring house prices and current account deficit, established his credentials in the global policy debate at a time when former president George Bush was casting around for a replacement for veteran Federal Reserve chairman Alan Greenspan. Below is the entire commentary.