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Paul Krugman: Revenge of the Glut

http://www.nytimes.com/2009/03/02/opinion/02krugman.html?_r=1

by browngeek • 17 years ago

2 1 17 years ago

NY

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owinebarger• 17 years ago

I don't think Krugman's conclusion that a savings glut is the problem is explicit enough. It's that so much of the savings was lent for consumption expenses, not investment in capital. This effectively localized the consumption in a relatively small population, which couldn't really consume as much as they were allowed to leverage, leading to inflation in pricing of the goods they were consuming (houses in this case). If the same savings had been consumed locally rather than given for consumption elsewhere, the total consumption would have been spread out enough to avoid the inflationary effects that blew up the bubble.

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