from Greenberg Center for Geoeconomic Studies

Gross or Net International Financial Flows

Understanding the Financial Crisis

June 30, 2009

Report

More on:

Economic Crises

Financial Markets

Overview

Many analysts, including Chairman Ben Bernanke of the Federal Reserve, have argued that global imbalances are an important causal factor of the global financial crisis. But it is not the net external imbalances (or net financial flows) of the surplus countries that move across borders and must be intermediated by the global financial sector; it is the gross financial flows of all countries that require this. Moreover, it is the gross stocks of assets held cross-border that must be managed for risk. In this Center for Geoeconomic Studies Working Paper, Karen H. Johnson explains in detail the differences between net external imbalances and measured gross financial flows, revealing that data on net external imbalances do not identify which countries are most actively involved in large cross-border financial transactions and, hence, whose behavior is most critical for global financial stability.

More on:

Economic Crises

Financial Markets

Top Stories on CFR

Mexico

Experts argue that Mexico affects daily life in the United States more than any other country. For years, U.S. and Mexican officials have attempted to tackle immigration, trade, and security challenges, and their success has depended on cooperation. With so much at stake, Why It Matters investigates the complex relationship and the factors that threaten it.   

Taiwan

To maintain peace in the Taiwan Strait, U.S. policy will need to adjust to deal with a more capable and assertive China.

Colombia

Over the two centuries since Colombia’s independence, the relationship between Washington and Bogota has evolved into a close economic and security partnership. But it has at times been strained by U.S. intervention, Cold War geopolitics, and the war on drugs.