Summary
1.There is a widespread belief that global imbalances have steadily diminished
in recent years. While it is indeed true that China’s current account surpluses
and US deficits have somewhat moderated, the underlying savingsinvestment
dynamics in these countries have not been unwound. Indeed,
China now invests more than in the pre-crisis era and the US saves less.
蓛 It is likely that China’s savings rate of over 50% of GDP will decline over the
next decade because of aging demographics and perhaps a shift in policy
preference from growth to internal balance. However, the Japanese
experience shows that a simultaneous decline in investment can generate
large and persistent current account surpluses even when the savings rate is
falling and the currency is appreciating. As a result, China may soon struggle
with the problem of having to invest abroad half a trillion dollars every year.

2. Meanwhile, the US investment rate is currently at exceptionally low levels and
we think that it will rise significantly over the next several years. As a result,
the country’s current account deficit too could begin to climb despite
improvements in household savings.

3. Our survey of 2000 years of history shows that the global economy is not
characterized by balance but by long periods of symbiotic imbalances. In this
report, we argue that the post-crisis world will continue to depend on the US
as a net demand source even as China floods the global economy with
capital. This ecosystem could be dubbed “Bretton Woods Three” and will
probably last for many years despite accompanying macro-economic
distortions. Even as China’s own growth rate steadily declines over the next
ten years, Chinese capital will fund growth in the rest of the world.