compared with the biggest surplus countries, their financial systems do a better job in financial intermediation. 2 ) these two groups of countries have also very different savings and consumption patterns. this reflects partly the already mentioned differences in financial systems but there are also other important differences. many " surplus countries " have poorly developed social safety nets compared with the bulk of latin american countries. the lack of safety nets forces people to save more and much of these savings are channelled abroad, given the lack of suitable instruments at home. in many of the surplus countries, most notably china, the markets for consumer goods are still underdeveloped, albeit they are developing quite rapidly. 3 ) there are also striking differences in monetary and exchange rate regimes. in the countries that are the main " culprits " for surpluses, the regimes tend to be based on external anchors and it seems that many of these countries have currently undervalued currencies pegged to the us dollar. in latin america, the increased prevalence of flexible exchange rate regimes, often combined with inflation targeting, make significant exchange rate misalignment less likely. furthermore, in these regimes policy stance is determined by domestic conditions not by an external anchor. deficiencies in institutional development in many of the surplus generating countries do not always receive sufficient attention in the discussion on global imbalances, which tend to focus excessively on the need for exchange rate adjustment. as for the latin american countries, one could say that in many important respects these countries have already contributed to resolving global imbalances by implementing sound policies and building institutional infrastructures. in this regard, many of the surplus countries have a lot to learn from the experience of the latin american countries.

##ed economists until john maynard keynes offered an explanation that was to influence policy practitioners for generations to come. he argued that, contrary to the tenets of smith and his followers, market systems did not always converge to full employment. they often appeared to settle at an equilibrium in which significant segments of the workforce were unable to find jobs. in the place of smith's laissez - faire approach arose the view that government action was required to restore full employment and to rectify what were seen as other deficiencies of market - driven outcomes. a tidal wave of regulation soon swept over much of the american business community. labor relations, securities markets, banking, agricultural pricing, and many other segments of the u. s. economy became subject to the oversight of government. the apparent success of the economy during world war ii, which operated at full employment in contrast to the earlier frightening developments during the depression years, led to a considerable reluctance to fully dismantle wartime regulations when the hostilities came to an end. however, cracks in the facade of government economic management appeared early in the post - world war ii years, and those cracks continued to widen as time passed. at the macro level, the system of wage and price controls imposed in the 1970s to deal with the problem of inflation proved unworkable and ineffective. and at the micro level, heavy regulation of many industries was increasingly seen as impeding efficiency and competitiveness. by the early 1980s, the long - prevalent notion that the centrally planned economy of the soviet union was catching up with the west had begun to be discredited, though it was not fully discarded until the collapse of the berlin wall in 1989 exposed the economic ruin behind the iron curtain. 1 / 6 starting in the 1970s, u. s. presidents, supported by bipartisan majorities in the congress, responded to the growing recognition of the distortions created by regulation, by deregulating large segments of the transportation, communications, energy, and financial services industries. the stated purpose of this deregulation was to enhance competition, which had come to be seen as a significant spur to productivity growth and elevated standards of living. assisting in the dismantling of economic restraints was the persistent, albeit slow, lowering of barriers to cross - border trade and finance. as a consequence, the united states, then widely seen as a once - great economic power that had lost its way, gradually moved back to the forefront of what joseph schumpeter, the renowned harvard professor,