Global Savings Glut Jude Wanniski April 17, 2005

To: Ben.S.Bernanke@* * * * *.gov
Re: Global savings glut

From Jude Wanniski, 8:19 pm, 4/17/2005

What Senate committee does the confirming? I never paid any attention, thinking the President always gets the CEA he wants. There has never been a confirmation fight over a CEA appointee, and it goes back more than 50 years.   JW

At 06:35 PM 4/17/2005, you wrote:

I do have to be confirmed, which may take a while.

Thank you for your comments.  I owe you a response to your answers on gold, will get to it this week.

Ben
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----- Original Message -----
From: Jude Wanniski [jwanniski@polyconomics.com]
Sent: 04/17/2005 05:49 PM
To: Ben.Bernanke@* * * * *.gov
Subject: Global savings glut

Dear Ben.... I did run through your St Louis speech and also send it on to others for comment, including Mundell, but have nothing back so far.

There is a lot of the Mundellian model in your analysis, i.e., you are in the ballpark, which is encouraging to me.

One thought I might share with you immediately is that I don't worry at all about the ROW buying privately issued stocks and bonds in the U.S. They are making bets that may or may not turn out, but if they lose, the American people are not stuck with helping them. It is only with their purchases of US governments that gives me some concern, but not much at this stage of the game, because the Treasury will take the hit, and have to push for higher tax rates in order to pay down the bonds.... if in fact the economy slumps and revenues don't recover.  Do you see my point?

As for the "savings glut," I suppose I should let you get away with this purely Keynesian term, but in the interest of trying to move our language closer together, I have to say that there is no savings glut and could never be.  Your point about baby boomers having more impact in Japan is not bad, and I commend you for making it as Japanese households and corps look for the best place to invest for their own retirement years and pension obligations. But the implications for US economic policy should make you stop and think.  Suppose we do what is necessary to solve our own public and private pension problems, we will have to slash taxes on capital (zero capgains I believe), but in doing so we would inspire the ROW to gobble up our financial assets (and real estate) even faster, which means our current account deficit goes higher. No?

The force of darkness in all this are the IFIs. If they would stop strangling the poor countries of the world with high tax rates and weak currencies, the poor countries would soon become giant magnets for U.S. capital. In other words, instead of solving the tricky economic problems we face by dumbing down, we solve them with the JFK idea that "a rising tide lifts all boats."

Do you have to be confirmed by the Senate? I don't think so. I suppose you are waiting until they fill your Fed slot. Yes? Still, you are undoubtedly thinking night and day on how you can best serve the President, the country and the world.  You are "on the margin."

Jude