BIS Review 124/2006  3  •  Anglo-saxon countries which are very good at producing financial assets have already shown enormous imbalances, with US current account deficit and housing market bubbles as the headline examples;  •  emergence of (long lasting) asset bubbles and drop in inflation (and possibly even emergence of deflation) are market mechanisms to bridge the asset gap;  •  bursting an asset bubble makes asset shortages problem worse;  •  while financial markets development moves ahead (think about large listings in China, improving corporate governance or rapid development of credit derivatives) it is unlikely that excess demand for assets will be eliminated soon, as it seems to have a structural origin, related to demographics (aging), or to higher uncertainty for corporations operating in more competitive global economy in XXI century, which probably explains why profits to GDP ratio is at 40-years high and investments fail to recover to pre-Asia-crisis and pre-dot-com-boom levels  It does matter to what view of the world you subscribe, as it dramatically alters the subjective likelihood of competing scenarios for 2007. As PIMCO Michael Gomez puts it in September emerging markets note titled “Is it safe?” 19 : “EM has historically been vulnerable to deteriorating economic and financial conditions in the United States and other developed countries.
This concept was put forward by Michael Dooley, David Folkerts-Landau and Peter Garber, who argue that a new world equilibrium has emerged and it is in the best interest of both the United States and China to continue financing consumption of American households with Chinese savings until Chinese economy reaches a status of a developed economy, so the new Bretton Woods can last for many years;  2.  global savings glut hypothesis was proposed by Ben Bernanke 4 , who postulates that the shock causing global imbalances originated from Asia as a result of excessive saving rates;  1  I borrowed this aeronautical comparison from a recent paper by Calvo G. and Talvi E. (2006) “The Resolution of Global Imbalances: Soft Landing in the North, Sudden Stop in Emerging Markets?”, CERES, Documentos de Trabajo. 2  This list is based on Rybinski K. (2006) “Global imbalances”, Ekonomista 4/2006 (in Polish).