No Scott, the future is Portugal

Arnold Kling

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Scott Sumner writes,

In my view, Japan is the future of the global economy. Not the deflation (I think the Fed will be able to keep inflation close to 2%) but the low real interest rates. In retrospect the 2001 recession (when rates fell to 1%) was the canary in the coal mine. Nominal rates will probably be unusually low from this point forward. Global saving will increase dramatically as Asian countries get richer (remember that most people are Asians) and slowing population growth outside of Africa will dramatically reduce the demand for investment funds.

It is not S=I. It is S = I + (G-T), and the equilibrium interest rate is rather high. Just wait.

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CATEGORIES: Fiscal Policy , Monetary Policy

COMMENTS (6 to date)

Latest Comment

Richard writes:

This post calls for a bet!

Posted February 4, 2012 11:07 AM

Ken writes:

I'd love to read a longer post on this.

Posted February 4, 2012 1:48 PM

B writes:

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Posted February 4, 2012 2:10 PM

J Oxman writes:

But, as Asian countries get richer the demand for investment will also go up, so the net effect of an increase in savings balanced with the increased demand for funds isn't clear. Also, savings rates decrease as a people becomes richer, so here too the dollar savings effect for the whole world is uncertain.

Posted February 4, 2012 5:44 PM

Xerographica writes:

Speaking of Asia...Noah deserves some props for this article...Lower Wages can be a Good Thing.

Posted February 4, 2012 6:37 PM

Scott Sumner writes:

Richard, He doesn't need to bet me, if he's right he'll get rich shorting 30 years Treasuries. Here's my prediction: Arnold Kling won't go all in shorting 30 year Treasuries. :)

Posted February 4, 2012 8:02 PM

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