Bernanke and Summers just call the same “idea” by different names. To Bernanke it´s “Savings Glut”. To Summers it´s “Secular Stagnation”. In his “A Response to Bernanke“, Summers writes: “The essence of secular stagnation is a chronic excess of saving over investment”.
I figured I could reblog this old post dealing with Bernanke´s GSG hypothesis and that would also cover Summers´arguments.
Bernanke is at it again. In a speech last friday and in a new paper, he gives new life to the global savings glut hypothesis (GSG) that he first put forth in 2005 as an explanation for Greenspan´s “Conundrum” (the fact that after mid 2004, with the Fed increasing the policy rate (FF), long term rates “stayed put”). This time he extends his original arguments by considering the type of assets desired by the emerging economies (the savers) as they recycled their dollar reserves into US investments.
Indirectly, this discussion, which has been going on for several years, smacks of an effort to absolve the Fed from responsibility for the financial crisis which erupted with the bursting of the house bubble. For many (see this post by David Beckworth), bad monetary policy in 2002-04 (“rates too low for too long”) is a major factor behind the housing boom…
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