This article in the New York Times examines how Chinese savings fueled the US bubble. In accord with Bernanke's Global Savings Glut theory it argues that excessive savings in the rest of the world is the source of our deficits and there is nothing we could have done about it, except pressure China to revalue the reminbi.
The essential parallel is with subprime lending. The Chinese were the predatory lenders and Americans were the ill-informed borrowers. It is a hard story to maintain. The fact that China saved excessively and lent to the US did not mean that we had to use these flows to finance a housing bubble. We could just as easily have used it for investment not consumption, or for building roads in the US instead of in Iraq. The fault for what we did with Chinese savings lies with us. If we had used low-cost finance effectively we would be better off now. The fact that we used it poorly is just a reflection of how short-sided our leaders were and how foolish investors were to believe that a bubble can go on forever.
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