Assignment #6 LFraser

The article "Revenge of the Glut," was written by Paul Krugman of The New York Times. This article was written for all those who are interested in how this global debt crisis happened. Krugman says that, "The answer, I'd suggest, can be found in a speech Ben Bernanke, the Federal Reserve Chairman, gave four years ago." The title of the speech was "The Global Saving Glut and the U.S. Current Account Deficit." Bernanke states that Asia is the cause of global debt.  Asia had a financial crisis in 1997-98. After this crisis it "began protecting themselves by amassing hugh war chests of foreign assets, in effect exporting capital to the rest of the world." He then says that "The result was a world awash in cheap money, looking for somewhere to go." "For a while, the inrush of capital created the illusion of wealth in these countries, just as it did for America homeowners: asset prices were rising, currencies were strong, and everything looked fine. But bubbles always burst sooner or later, and yesterday's miracle economies have become today;s basket cases, nations whose assets have evaporated but whose debts remain all too real. And these debts are an especially heavy burden because most of the loans were denominated in other countries' currencies." Bernanke and Krugman believe that Asia's crisis is where the global crisis started.