>The source of financial imbalances: Global excess production capacity (NATIXIS)

Globalisation has led to excess global production capacity: emerging countries have high savings rates, invest a lot and have large available labour reserves; OECD countries have not reduced their production capacity despite the opening of trade with emerging countries. The first effect of this situation is of course the enduring absence of inflation.

Since there is excess global production capacity, various countries are clashing as they want to use their domestic production capacity, and therefore to grab a larger share of the demand:

■ in OECD countries, the technique used is an increase in indebtedness, private-sector until the crisis, and now public;

■ in emerging countries, the technique used is an undervaluation of their currencies.

The result of this conflict about capacity utilisation is excess private-sector and public indebtedness, financial crises, excess liquidity and anomalies in the exchange-rate system. The imbalances will disappear only when the excess production capacity has been corrected, which is not the case currently.

To read the full report: FINANCIAL IMBALANCES