News>2008.11.17

 

【Column】"Foudamental cause of financial crisis in US"

 

AIG bailed out, lowing stock price, and Lehman Brothers bankrupt. All these symptoms happened in this year suddenly and dramatically. These events surely surprised me since high business performance of US financial institutions used to be always successful globalized corporations as opposed to the relatively poor performance of Japanese mega bank and finance institutions. It is ironical that these Japanese financial institution are to be relatively better evaluated by world investors.

A question comes to me like what really caused these financial crisis in the first place. I found huge trade deficit of US about 3 trillion USD. Since year of 2ooo, due to Iraq war and the end of IT boom, trade and financing deficit continues to stay around minus around 2-4% of total GDP. Its amount of US deficit is 788 billion USD in 2006.

Foundamental cause of financial crisis in US

 

Given these facts I may rather conclude that these crisis simply rest with nature of financial structure and consumer behaviors in US. I strongly agree that sub prime loan is not cause but effect from trade deficit in US. in CNN articles. Sub prime loan must be one of symptom.

Some of articles claims these deficit comes from Chinese trade surplus although, it does not seem to be the root cause given the fact that The United States reported a $232.5 billion trade deficit with China in 2006, which is less about one third of current account balance minus 788 billion USD in US. This symptom must not be irrelevant of high-consumption society where US as country grows.

In a sense, US in the global world had continued to consume goods and services with owing money from not only emerging counties including China and India but also developed counties and highly growing countries such as Iceland so that they can grow own economy.

Actually US have continued to consume money with deficit financing. The high percentage of stock and bond in total assets supports as opposed to cash more than half of total personal asset, non risk money.

In 2006, there was interesting observations in Japanese by RIETI (The Research Institute of Economy, Trade and Industry in Japan) . Author already pointed out already something unhealthy economic situation in US with huge trade deficit.