According to this interpretation, foreign asset demand not only pushed down the risk-free interest rate in the US but also compressed the risk premia on risky assets. The low cost of financing, in turn, fostered an increase in the level of leverage of the domestic financial sector which exacerbated systemic risk.
And while in the aftermath of the crisis the global imbalances have somewhat improved, with savings rates in the western world slightly increasing, I expect that in the future emerging market economies will continue to accumulate foreign reserves and invest them in advanced economies, in the process depressing long-term interest rates and intensifying again the search for yield.