Farmers know that a bumper crop of anything will put pressure on the price of whatever the thing is. They also know that high yields mean higher prices for storage and other carrying costs. Dealing with this is just a part of the job for a farmer. When there is a glut of corn, we know who and what to blame. Usually, it’s favorable weather conditions and effective agricultural management techniques.

Global savings glut

When there is too much money in the international economic system and it’s distorting the global economy, who’s responsible, and where did it all come from? According to the National Public Radio News Blog, a [global savings glut], or “giant pool of money” was the actual catalyst for the sub-prime mortgage crisis which nearly brought down the global economy. From this news item we learn that there was $70 trillion of surplus savings in this giant pool of money. This is much more than every person on earth can spend in a year. With no other place to go, a lot of this money ended up chasing a limited supply of safe and secure investments, and that is how the world ended up with massive distortions in the economy that heated up demand for otherwise hum drum sub-prime mortgage paper.

Massive pools of money like this form because of critical changes in how our largest and most important industries get started and grow. During the era of the great American industrial revolution many millionaires were created. They also generated large pools of surplus savings, but in those days there were many capital intensive industries to invest in, and shares of railroads, coal mines and steel mills were available to soak up much of that surplus money. Today’s largest corporations (e.g., Google, Facebook, Apple) tend to be technology companies that are not so capital intensive. It doesn’t take a great deal of money to get organizations like these up and running. Needless to say, companies like Google, Facebook and Apple have over time created more than a few billionaires (rather than millionaires), and it remains an open question as to how they are going to influence the global glut in savings going forward.

 

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