While I can pick nits with Richard Clarida’s description of the large amounts of capital on world markets as being evidence of an “excess supply of saving,” I think he’s on the mark with this passage that appears in his contribution to the just-released issue of the Cato Journal:
I note that in a world, like the present, in which there is a global excess supply of saving relative to investment, some country or group of countries must absorb the surplus of internationally mobile capital. As evidence in favor of this view, I point out that the level of global interests, including interest rates, is quite low by historical standards. I conclude that the United States, because of the role of the dollar as a vehicle currency, because of the depth and breadth of the U.S. financial markets, and because of the credibility of U.S. monetary policy, is destined for some time, as it has been for the last 20 years, to run a structural international capital inflow, and thus a structural current account deficit.
