home > by publication type > op-eds > Imbalance of Powers
Email
| Author: | Brad W. Setser, Fellow for Geoeconomics |
|---|
April 21, 2009
Foreign Policy
Many have pointed to Sept. 15, 2008, as the day the global economy fell off a cliff. That was the day Lehman Brothers declared bankruptcy, sending equity markets into a tailspin and freezing up credit around the world.
But the global economy wasn't in great health prior to Lehman's crisis -- and we have yet to fix all of the structural problems that helped put us where we are today. Prior to the crisis, U.S. households saved too little and borrowed too much. Conversely, many of the United States' creditors consumed too little and saved too much. Asia and the oil-exporting countries were simultaneously running large trade surpluses (that situation is unusual: a rise in oil prices usually reduces the surplus of oil-importing East Asia). These combined large surpluses also necessarily implied large deficits elsewhere in the global economy. On the whole, money was flowing uphill, from emerging economies to advanced economies, from the poor to the rich, and from countries offering high financial returns to countries generally offering low returns.
The U.S. trade deficit, to be sure, reflected the United States' own excesses, as financial and political leaders alike turned a blind eye to a housing bubble. Nor did U.S. regulators prevent financial leverage from rising as investors sought to maintain returns as yields fell.
But America wasn't solely to blame. A host of emerging economies maintained policies -- such as China's de facto dollar peg -- that pushed up their trade surpluses and thus their capacity to finance the United States' deficit.
To order Task Force reports, Council Special Reports, and Critical Policy Choices, please call, fax, or order online from our distributor, the Brookings Institution Press: phone +1.800.537.5487, fax +1.410.516.6998.
For information on other reports that are not for sale, or for general publications information, please call +1.212.434.9516 or email publications@cfr.org.
Start-Up Nation addresses the trillion-dollar question: How is it that Israel—a country of 7.1 million, only sixty years old, surrounded by enemies— produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the UK? With the insights of geopolitical experts and investors, the authors examine this nation’s adversity-driven culture to answer this question and offer prescriptions for a global economy on the rebound.
In Forces of Fortune, Vali Nasr presents a paradigm-changing revelation that will transform the understanding of the Muslim world at large. He reveals that there is a vital but unseen rising force in the Islamic world—a new business-minded middle class—that is building a vibrant new Muslim world economy and that holds the key to winning the cold war against Iran and extremists.
In Cuba: What Everyone Needs to Know, Julia E. Sweig presents a remarkably accessible portrait of Cuba's unique place on the world stage over the past fifty years, including its internal politics, its often fraught relationship with the United States, and its shifting relationship with the global community.
Complete list of CFR Books
Copyright 2009 by the Council on Foreign Relations. All Rights Reserved.