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> The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing. I've heard this before and it doesn't

> The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing. I've heard this before and it doesn't go far to explain any of this. The modern plumbing between savers and borrowers makes this almost meaningless. There is the fractional reserve system to begin with. Savings are only a tiny fraction of the money actually borrowed out there. On top of that, the collateral is historically overvalued while rates are low. I don't know if you are suggesting that savings = debt, that's a subject to interpretation but the way most economists understand it that's not true in this system by a long shot. > the US attracts savings from abroad I assume by savings from abroad you mean foreigners buy dollars to buy stocks and (to a lesser extent) bonds. I don't think this refers to actual cash which is the savings from "the savings glut".

rolltiide 7y ago
These are related issues. The debt glut exists because interest rates are low, interest rates are low for the specific goal of making savers feel like owning US debt or parking money in bank accounts is a waste of time. The goal is for those savers to give random entrepreneurs their money to do fuck all with to "stimulate the economy", and the market is saying "hell no, instead of me earning minuscule interest, I'll literally pay you so I don't have to do that", so governments and corporations issue even more debt at lower and even negative yields.
skybrian 7y ago
Leaving banking to one side, here are the key facts about foreign investment: 1) Nobody sells stuff for free. This includes foreigners selling us imported goods. They will always be compensated somehow. 2) Investors try not to lose money. This includes foreign investors. 3) The U.S. has been running a trade deficit for decades. The result is that foreign investment in the U.S. keeps going up. As long as imports don't balance exports, the difference becomes an increase in foreign ownership of US investment assets. There are two ways for foreign investment to stop increasing. Either the trade balance reverses (fewer imports and more exports) or foreign investors lose their investments and write them off. This does happen sometimes; consider the Saudis, Softbank, and WeWork. In a way, this is good from the US point of view, because foreign losses mean we did eventually get some of our previous imports for free. It's a good trade! But, usually investors learn from their mistakes, so this can't be guaranteed. Not wanting to lose money (but not wanting to spend it either) means there is a high demand for safe investments like Treasury bonds. This drives interest rates down. In the meantime, more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash). Many countries would like to increase exports and own more foreign investments. Much of Wall Street financial innovation comes from attempting to give these investors what they think they want. Some of the things they come up with may actually be good investments and others might just look good. This trend can keep going as long as there are countries trying to become richer via export-led growth, foreign investors don't lose confidence, and foreign consumers aren't empowered and encouraged to buy enough international goods to match their countries' exports. Even troubled times might not cause investors to stop investing in the more stable countries due to lack of good alternatives. Instead there is a "rush to safety".
- vladimirralev 7y ago
  > more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash) Can you clarify what else other than cash it means?
  - skybrian 7y ago
    "Cash" is often used broadly to mean any low-risk, stable investment that could easily be exchanged for cash. So for example a reporter might write that Google has "over $100 billion in cash", but if you look at the balance sheet, "total cash" includes both "cash and cash equivalents" and "short term investments." These investments might include short-term government and corporate bonds.
    - vladimirralev 7y ago
      Sure but then the savings reference breaks down. Bonds and corporate bonds in particular shouldn't be considered "savings" because the money is being circulated. I am sure everybody has a different definition but in the "global savings glut" phenomenon those savings shouldn't include bonds?
      - skybrian 7y ago
        Yes, this is a matter of definitions, but it looks like the people writing about "global savings glut" are including short-term corporate bonds. But the reason there is a choice of definitions is because all lending creates money if the debt is considered reliable and can circulate like money. It's quite similar to the reasons that bank deposits are considered money. You can use a stricter definition that doesn't include bonds but I'm not sure why you prefer it?

rolltiide 7y ago

These are related issues. The debt glut exists because interest rates are low, interest rates are low for the specific goal of making savers feel like owning US debt or parking money in bank accounts is a waste of time. The goal is for those savers to give random entrepreneurs their money to do fuck all with to "stimulate the economy", and the market is saying "hell no, instead of me earning minuscule interest, I'll literally pay you so I don't have to do that", so governments and corporations issue even more debt at lower and even negative yields.

skybrian 7y ago

Leaving banking to one side, here are the key facts about foreign investment: 1) Nobody sells stuff for free. This includes foreigners selling us imported goods. They will always be compensated somehow. 2) Investors try not to lose money. This includes foreign investors. 3) The U.S. has been running a trade deficit for decades. The result is that foreign investment in the U.S. keeps going up. As long as imports don't balance exports, the difference becomes an increase in foreign ownership of US investment assets. There are two ways for foreign investment to stop increasing. Either the trade balance reverses (fewer imports and more exports) or foreign investors lose their investments and write them off. This does happen sometimes; consider the Saudis, Softbank, and WeWork. In a way, this is good from the US point of view, because foreign losses mean we did eventually get some of our previous imports for free. It's a good trade! But, usually investors learn from their mistakes, so this can't be guaranteed. Not wanting to lose money (but not wanting to spend it either) means there is a high demand for safe investments like Treasury bonds. This drives interest rates down. In the meantime, more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash). Many countries would like to increase exports and own more foreign investments. Much of Wall Street financial innovation comes from attempting to give these investors what they think they want. Some of the things they come up with may actually be good investments and others might just look good. This trend can keep going as long as there are countries trying to become richer via export-led growth, foreign investors don't lose confidence, and foreign consumers aren't empowered and encouraged to buy enough international goods to match their countries' exports. Even troubled times might not cause investors to stop investing in the more stable countries due to lack of good alternatives. Instead there is a "rush to safety".

vladimirralev 7y ago
> more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash) Can you clarify what else other than cash it means?
- skybrian 7y ago
  "Cash" is often used broadly to mean any low-risk, stable investment that could easily be exchanged for cash. So for example a reporter might write that Google has "over $100 billion in cash", but if you look at the balance sheet, "total cash" includes both "cash and cash equivalents" and "short term investments." These investments might include short-term government and corporate bonds.
  - vladimirralev 7y ago
    Sure but then the savings reference breaks down. Bonds and corporate bonds in particular shouldn't be considered "savings" because the money is being circulated. I am sure everybody has a different definition but in the "global savings glut" phenomenon those savings shouldn't include bonds?
    - skybrian 7y ago
      Yes, this is a matter of definitions, but it looks like the people writing about "global savings glut" are including short-term corporate bonds. But the reason there is a choice of definitions is because all lending creates money if the debt is considered reliable and can circulate like money. It's quite similar to the reasons that bank deposits are considered money. You can use a stricter definition that doesn't include bonds but I'm not sure why you prefer it?