Toward the Highest Stage of Ultra-imperialism?

A local friend of mine jokes: if worst comes to worst, the US can always annex Saudi Arabia. But why stop there on the way to the highest stage of ultra-imperialism: America, China, Japan, Germany, and Saudi Arabia together legally conglomerated into a new United States, bringing Americans -- thank Allah and Confucius -- back in the black?

Global Balance of Payments ($bn, 2007)

SOURCE: Martin Wolf, "Asia's Revenge," Financial Times, 9 October 2008, p. 9.

Jokes aside, Martin Wolf's article that I used as the source for the chart above is actually very useful (except its conclusion still in favor of "liberalized finance" that is unsupportable based on the logic and evidence of the article itself). It succinctly highlights the problem of global inequity and inefficiency -- poorer nations exporting surpluses to richer nations, only to see them wasted on an enormous debt-fueled real-estate Ponzi scheme -- as the cause of the financial crisis of the century.

What lay behind the savings glut? The first development was the shift of emerging economies into a large surplus of savings over investment. Within the emerging economies, the big shifts were in Asia and in the oil exporting countries (see chart). By 2007, according to the International Monetary Fund, the aggregate savings surpluses of these two groups of countries had reached around 2 per cent of world output.

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Last year, the aggregate surpluses of the world's surplus countries reached $1,680bn, according to the IMF. The top 10 (China, Japan, Germany, Saudi Arabia, Russia, Switzerland, Norway, Kuwait, the Netherlands and the United Arab Emirates) generated more than 70 per cent of this total. The surpluses of the top 10 countries represented at least 8 per cent of their aggregate GDP and about one-quarter of their aggregate gross savings.

Meanwhile, the huge US deficit absorbed 44 per cent of this total. The US, UK, Spain and Australia -- four countries with housing bubbles -- absorbed 63 per cent of the world's current account surpluses.

That represented a vast shift of capital – but unlike in the 1970s and early 1980s, it went to some of the world's richest countries. (emphasis added, Wolf, p. 9)

There is no political or economic incentive on the part of the biggest deficit spenders, especially the US, to change this pattern. The change therefore has to come from surplus generators.