MORE ON OVERACCUMULATION
From Martin Wolf's column in the Financial Times today (sub. only):
High savings rates in oil-rich countries are not surprising. Nor are they foolish. Recipients of a windfall do well to spread the spending out over time. But Russia's current account surplus of 10 per cent of GDP last year must also reflect the dreadful investment climate in that country.What is interesting in this instance of overaccumulation is the extent to which state policies have managed it. As Wolf points out, in their quest to limit domestic investment, Asian states have gone on a sterilization binge:
Yet Asia is, once again, the big story. China's investment rate is 15 percentage points higher than the pre-crisis average, while its savings rate is 12 percentage points higher (see chart). The Asean four invested only 21 per cent of GDP in 2004, which is 4 percentage points lower than the pre-crisis average, while their savings rates are 3 points higher. Finally, the Asian newly industrialised countries have also lowered their investment rates by 4 percentage points since before the crisis, while their savings rates have dropped by almost 2 points.
Thus the soaring savings surplus of emerging Asia is the result of rising savings rates and, in some cases, of falling investment rates as well. MoreÂover, if China's massive investment rate were to fall to levels that are normal elsewhere, its current account surplus could jump to enormous levels.
the excess of the increase in foreign currency reserves over the expansion of their monetary base has been very large: between 2002 and 2004, it was 19 per cent of GDP in the newly industrialised countries, 11 per cent in China and 8 per cent in India.Why are these states so keen to limit productive investment in their own economies? Clearly China feels its best bet is to sell to the United States, not at home. From 1997 to 2004, US goods imports from China surged 214% in nominal terms, from $62.6bn to $196.7bn. So far this year the US is on pace to import $252.3bn in goods from China -- over 300% more than just 8 years ago. Moreover, as Wolf points out, "Already [China's] ratio of trade (exports plus imports) to GDP is 70 per cent. This is much the same as for South Korea." It is truly astounding how dependent on trade this largest country in the world is.
And as China goes, so goes East Asia, for most if not all of the rest of East Asia is along for the Chinese ride.
Of course, there is no necessary reason why more capital investment into China will be funneled into the productive sector. The Shanghai real estate market indicates as much. China is producing an enormous amount of capital -- thanks to transnational corporations especially -- but as yet cannot provide anywhere near enough profitable avenues for its investment.
The history of the resolution of crises of overaccumulation is the devaluation of capital. Inflation (including currency devaluation) is one means, but the commitment of the most powerful central banks of the world to near-zero inflation makes this an unlikely avenue of resolution. Asset devaluation -- such as a real estate collapse -- is another, perhaps more likely candidate. Bankruptcy and unemployment are also on the list. One must also consider the social and geographical diversity of these processes of devaluation. In periods of acute overaccumulation, the goal is always to stick the 'other guy' with the costs of devaluation -- whether the 'other guy' is another industry, another social class or another country. Financial crisis gives birth to crisis in the 'real economy' and all scramble to make sure the 10-ton weight falls on somebody else.
Or will Uncle Alan -- or Uncle Ben in the future -- find us yet another asset to soak up this excess capital, cascading us from one bubble to another to another? I certainly don't rule out the evil genius of the financial sector finding us still one more roller coaster to ride.