Global current account balances as a % of world GDP

Transcription

1 Global current account balances as a % of world GDP United States Germany+Japan Developed Rest OPEC Developing Rest China Source: IMF BOPS Too Much of the Wrong Sort of Capital Flow 1

2 Eurozone current account deficits: % of GDP % of 2000 GDP 2008 % Greee Greece Ireland Ireland Portugal Portugal Spain Spain Year Source: InternaIonal Monetary Fund, World Economic Outlook Database, October 2012 Too Much of the Wrong Sort of Capital Flow 2

3 US private and public leverage cycles Source: McCulley and Pozsar Too Much of the Wrong Sort of Capital Flow 3

4 UK household deposits and loans: % 90% 80% 70% SecuriCsaCons and loan transfers Deposits Loans % of GDP 60% 50% 40% 30% 20% 10% 0% Source: Bank of England, Tables A4.3, A4.1 Too Much of the Wrong Sort of Capital Flow 4

5 Measures of increasing financial intensity 300% US debt as a % of GDP by borrower type 250% 200% 150% 100% 50% 10% Too Much of the Wrong Sort of Capital Flow 5

6 US financial sector assets 300% Banks GSE Issuers of ABS Security Broker- Dealer MMMFs Agency and GSE- Mortgage Pools Finance Companies Funding CorporaCon 250% 200% 150% 100% 50% 0% Too Much of the Wrong Sort of Capital Flow 6

7 Categories of debt: UK 2009 bn Other corporate Commercial real estate Primarily produccve investment Some produccve investment and some leveraged asset play ResidenCal mortgage (including securiczacons and loan transfers) 1235 Mainly purchase of exiscng assets Unsecured personal 227 Pure life- cycle consumpcon smoothing Too Much of the Wrong Sort of Capital Flow 7

8 Credit and asset price cycles Increased credit extended Increased lender supply of credit Increased borrower demand for credit Expectation of future asset price increases Increased asset prices Favourable assessments of credit risk Low credit losses: high bank profits Confidence reinforced Increased capital base Too Much of the Wrong Sort of Capital Flow 8

9 Interactions between credit categories and effects Increased apparent wealth Reduced saving: increased consumpcon Increasing credit supply / demand Increased price of exiscng real estate Increased prices for new real estate Boom in new real estate construccon Borrower and lender net worth, confidence and expectaconal effects Equity withdrawal mortgage supply & demand Too Much of the Wrong Sort of Capital Flow 9

10 Categories of net capital flow effects Finance for new real estate construcion boom Over- investment cycle and debt overhang Spain, Ireland, US Finance for exising real estate purchase Credit and asset price cycle and debt overhang UK (And Spain, Ireland, US) Finance of unsustainable consumpion Debt overhang US in parccular Too Much of the Wrong Sort of Capital Flow 10

11 Net capital flows and domestic credit cycles Structural drivers of current account imbalance Increased debt finance of: Real estate ConsumpCon Credit and asset price cycles Wealth effects and increased consumpcon DomesCc banking system creacon of credit and matching money Total increase in credit and subsequent debt overhang a large muliple of the net internaional capital flows Too Much of the Wrong Sort of Capital Flow 11

12 Total cross-border capital inflows: Foreign direct investment USD trillions, constant 2011 exchange rates Equity Bonds Loans and deposits % Global GDP Source: Future of Long-term Finance, Group of Thirty Report, MGI, December 2012 Too Much of the Wrong Sort of Capital Flow 12

13 Coefficient of variation of inward cross-border runs by type Emerging Markets Short maturity Long maturity Developed Markets Short-term bank claims Long-term bank claims Bonds Equity FDI Source: Future of Long-term Finance, Group of Thirty Report, MGI, December 2012 Too Much of the Wrong Sort of Capital Flow 13

14 Dynamics of increasing deficits in reserve currency economy Naturally arising operaconal & investment preferences $ Reserve currency status Need to hold $ reserves matched by necessary US current account deficit SCll further increase in market liquidity $ interest rates marginally lower $ exchange rate higher No constraint on increasing deficit given reserve currency status Easier supply of credit increased consumpcon Increased current account deficit Consequent current account deficit and overseas holding of $ can be far higher than reserve currency status makes necessary Too Much of the Wrong Sort of Capital Flow 14