Global imbalances and the financial crisis
By: Steven Dunaway
Contributors: Council on Foreign Relations. Maurice R. Greenberg Center for Geoeconomic Studies
Series: Council special report / Council on Foreign Relations -- no. 44; CSR (New York, N.Y.) -- no. 44.
Publisher: Council on Foreign Relations, Center for Geoeconomic Studies
Published: 2009
Place of publication: Washington, D.C
Language: eng
Number of pages: 44
ISBN-13: 9780876094280
Subjects: Balance of trade; Balance of payments; Saving and investment; International finance; International Monetary Fund
Description: Crafting stimulus packages and financial bailouts to address immediate problems has for many reasons been a priority for policymakers. In this Council Special Report, however, Steven Dunaway argues that policymakers must go beyond these steps and tackle one of the root causes of today's crisis: imbalances between savings and investment in major countries. The report analyzes the nature of these imbalances, which occur when some countries, such as the United States, run large current account (essentially trade) deficits while others, such as China, maintain large surpluses. Dunaway identifies three features of the international financial system that have allowed the imbalances to persist, features that involve both floating and managed exchange rates as well as the issuance of reserve assets. In particular, he notes that the United States' status as an issuer of such assets has enabled it to finance a current account deficit. The report then prescribes a variety of steps to address global imbalances. Beyond stimulus packages around the world, it urges measures to raise savings (principally government savings) in the United States, reform labor and product markets in Europe and Japan to increase competition and flexibility, and boost domestic consumption in China. Finally, the report advocates improving International Monetary Fund (IMF) surveillance of member states' economic policies by reducing the role of the Fund's executive board and depoliticizing the selection of its senior management.
Notes: "March 2009."

Includes bibliographical references (p. 31-32).

Also available online at the CFR website.