Communist Party of Australia

No country was left unaffected amid the global financial meltdown, which was triggered by the sub-prime mortgage crisis in the US. Leaders of G-20 nations reached an agreement on the cause of the financial turmoil in the Washington Declaration at the end of 2008, when they held a summit to find a solution to address the crisis. But while every nation is working hard to fight the economic downturn, some unconstructive western scholars and economists, such as outgoing US Treasury Secretary Henry Paulson and the current US Federal Reserve Chairman Ben Bernanke are pointing the finger, saying that overspending and capital asset bubbles are the result of high saving in countries like China. They also make unwarranted charges that huge foreign trade surplus in some Asian countries, China in particular, is the root cause for the current financial storm.

Their remarks made headlines but cannot change the facts.

High saving and huge trade surplus in China should not be blamed for low saving and huge trade deficit in the US, which is a result of policy and consumption habit the country adopted over a long period of time.

There is no cause and effect relationship between huge trade deficit in China and low saving in the US – they occurred in different times. Americans had developed their consumption habit before China accumulated massive foreign exchange reserves.

The private saving rate in the US dropped below zero during the Great Depression in the 1930s, with the lowest at 1.5 percent. The private saving rate dropped to two percent in 1999 and kept at that level for the next six years as a new round of decline started in 1984. The US has been suffering from trade deficits from the early 1980s, and deficit also occurred in the country’s fiscal revenue over the past 30 years.

Policies in the US also accounted for high consumption and a huge trade deficit in the country. On one hand, the US adopted flexible monetary policy and stimulated economic growth with low interest rates since the breakdown of the IT bubbles. Meanwhile, measures such as tax cuts and a deficit fiscal policy were also launched. The stimulus package greatly boosted consumption and public spending, but reduced private and government savings. On the other hand, the US set up various barriers while importing large amounts of commodities to meet the domestic demand.

China’s trade surplus reflects the change in the international division of labour and trade patterns, a result of the deepening of the global division of labour led by industrialised nations under globalisation.

The long-term interest rate in the US has been on the decline since the 1980s. It is the result of the macro-economic policies pursued by the US government in order to stimulate economic growth. China began to buy US bonds from 2003. It is groundless to blame China for the fall of long-term interest rates in the US.

The failure of economic policy and ineffective monitoring and control in the US are the direct cause for the financial crisis. The economic structure and macro-economic policies created a huge trade deficit. Blaming countries with high saving rate for the ongoing crisis is irresponsible and dangerous.

If we compare the US economy to a car, emerging markets have somehow served as windshields amid the battering of the financial storm. Can we blame the windshields for the failure of a car?

It is not time to play a blame game. Regulators in the United States might not want to miss the chance that they failed to seize before the crisis, when property companies, investment banks and insurance companies juggled various financial products and Wall Street elites snatched tens of millions out of the bubble.

From Editorials in Xinhua and The People’s Daily

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