In the 1990s and 2000s, growing income inequality in most countries led to a global shortfall between supply and demand. The US economy bridged this shortfall through equity market and housing bubbles, which produced more severe financial crises. Rebalancing after the 2008 crisis required trade surplus countries to expand their non-traded sectors, and the FED’s three rounds of Large Scale Asset Purchases (quantitative easing) shifted investment flows towards some developed and developing economies. While capital inflows led to shrinking trade surpluses in those countries, their relatively undeveloped securities markets mean that rebalancing largely occurred through rising housing prices. However this is not a sustainable solution to global trade and financial imbalances in the long run, and risks producing the same kind of crises the United States experienced in 2008.
Herman Schwartz is a professor in the Politics department of the University of Virginia. He is the author or editor of seven books on economic development, globalization, Denmark’s welfare state, employment policy, the politics of housing finance, the global financial crisis, and, most recently, the geo-politics of the subprime mortgage crisis in *Subprime Nation: American Power, Global Capital and the Housing Bubble*. He has also written over 50 articles and chapters. He was a Fulbright Scholar at the University of Aarhus, Denmark, and a Fulbright Chair at the University of Calgary, Alberta Canada. He is or has been a visiting scholar at / Radboud University in Nijmegen, Netherlands / KyungHee University in Seoul, Korea / and City University London.