The U.S. savings gap and global imbalances

Summary

In the 1980s the pattern of international savings flows changed dramatically and this is reflected in huge international imbalances in trade and finance and in the U.S. savings gap. Therefore, the U.S. has had to absorb hundreds of billions of savings from the rest of the world. For a variety of reasons, fiscal rather than monetary policy should eliminate the budget deficit thereby both solving the savings gap problem and creating a stable economic environment.