Global imbalances (Borio and Disyatat)

Global imbalances and the financial crisis: link or no link? by Claudio Borio and Piti Disyatat, published by BIS. “Global current account imbalances have been at the forefront of policy debates over the past few years. We conjecture that the main contributing factor to the financial crisis was not “excess saving” but the “excess elasticity” of the international monetary and financial system: the monetary and financial regimes in place failed to restrain the build-up of unsustainable credit and asset price booms (“financial imbalances”). Credit creation, a defining feature of a monetary economy, plays a key role in this story.