On the Validity of the Global Savings Glut (GSG)

Are there any discernible connections between the spiraling amounts of Schuld owned by billions of people and dozens of nation-states and the planetary-wide proliferation of Fiat Currencies since the death of Bretton Woods? This Blog has found convincing evidence to suggest that there is a connection because all Fiat Currencies are backed by the “Full Faith and Credit” of the issuer’s word. The only way any issuer is going to enforce the Value of its Fiat Currency is with Schuld. The amount of Kapital denominated as Fiat Currencies would yield massive trails of Schuld. However, is all of the Kapital being spent and invested at all? Is it possible that Kapital is being hoarded for its own sake?

One possibility addressed in the SMP Compendium was that a sizeable portion was misallocated to “Zombie Firms” and “Zombie Banks” since many of them were simply too-big-to-fail and too unprofitable to nationalize. The only thing sustaining them are injections of Kapital from the Financial Regimes of Liberal Capitalist nation-states. Another possibility, also stated in the SMP Compendium, was that Kapital is being created, devoid of any concrete relationship with any actual economic activities through Quantitative Easing methods in “Open Market Operations.”

Even so, there is another consideration which is of interest to the Blog, and that is the “Global Savings Glut” (GSG) conceptualized by Ben Bernanke in 2005. Bernanke introduced the concept as an attempt to explain why the US Current Accounts, which monitored international flows of Kapital, briefly achieved deficits in the mid-2000s:

My own preferred explanation focuses on what I see as the emergence of a global saving glut in the past eight to ten years. This saving glut is the result of a number of developments. As I will discuss in more detail later, one well-understood source of the saving glut is the strong saving motive of rich countries with aging populations, which must make provision for an impending sharp increase in the number of retirees relative to the number of workers. With slowly growing or declining workforces, as well as high capital-labor ratios, many advanced economies outside the United States also face an apparent dearth of domestic investment opportunities. As a consequence of high desired saving and the low prospective returns to domestic investment, the mature industrial economies as a group seek to run current account surpluses and thus to lend abroad.

Although strong saving motives on the part of many industrial economies contribute to the global saving glut, the saving behavior of these countries does not explain much of the increase in desired global saving in the past decade. Indeed, in a number of these countries–Japan is one example–household saving has declined recently. As we will see, a possibly more important source of the rise in the global supply of saving is the recent metamorphosis of the developing world from a net user to a net supplier of funds to international capital markets.”  

In essence, a Global Savings Glut refers to the problem where Kapital is being hoarded as Savings and not enough being allocated as Investments, creating an imbalance between them. Nothing is being done with this Kapital, as it is only being allowed to accumulate for the future. Bernanke cited the issue of demographics in the Western world; as working-age populations decline and the burden on social welfare increases, it becomes inevitable for elderly people to save more Kapital since most of them are retired. Whatever Kapital these people saved their early-to-mid adult years contributes to their Savings. Given his research into the Great Depression, it makes sense for Bernanke’s conclusions to dovetail the Keynesian model of a “Liquidity Trap,” which shares some of the characteristics of GSG.

The most apparent consequence of GSG, apart from accumulating Schuld and declining economic productivity due to misallocations of Kapital, is a discernible drop in Interest Rates. It is more common nowadays to encounter countries either reluctant to increase Interest Rates, have very low or 0% Interest Rates, or even experienced Negative Interest Rates where the Lender pays the Borrower for simply lending. There is a recurring need to provide an “Incentive” for people to borrow the Kapital to fuel further Investment and create more Kapital. Every act of borrowing creates Schuld that must be paid back in full. Keeping Interest Rates low or even dropping into Negative Interest was done solely for the sake of providing more borrowing.

Since an Interest Rate is needed under Liberal Capitalist Financial Regimes to control the Inflation/Deflation Rate and prevent too much Kapital from creating Economic Bubbles, it becomes natural to expect the GSG to become the impetus of future financial crises. It is noteworthy that GSG has been cited as being one among various different factors behind the circumstances of the Great Recession and the Eurozone Crisis. Moreover, there is also the possibility that the Kapital of GSG occurred as a consequence of Kapital being concentrated at the top, a problem exacerbated by Supply-Side Economics as a stopgap measure against the death of Bretton Woods causing another problem, Stagflation. A problem created by a proposed solution to the same problem that created Earth’s precarious financial climate since the 1970s.

Another problem with GSG is how it allows for Deflation to exist. Since the Kapital is not being spent, that Kapital is allowed to accumulate and gradually appreciate the Value of a Fiat Currency pegged to Schuld. The Deflation causes downward pressure on Prices, causing them to decrease and allow Inflation Rates to drop. Too much Deflation has the potential to create suitable conditions for the creation of Recessions and, if any recession lasts too long, Depressions. And therein lies a temptation to exploit the existence of GSG to justify more Kapital spending to create more Kapital and spending more Kapital to compel people to raise more children who will eventually create even more Kapital. This logic is about as flawed as the need to justify Progressive Taxation schemes, even though they actually compel those with Kapital to find more clever ways to evade Progressive Taxes and launder the Kapital elsewhere.   

Of course, none of these problems affect the Work-Standard, and this goes back to the distinct manner in which Attrition/Inaction Rates function. An exploration of the Total Financial Potential (TFP) in the SMP Compendium will explain why this is so.

Categories: Blog Post, Economic History, Uncategorized

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