For almost two decades, global imbalances were small enough to ignore. That reprieve is over.
America’s net liabilities to the rest of the world have reached an extraordinary 90 per cent of GDP. G7 has rightly taken notice. President Emmanuel Macron has placed the restoration of balanced and sustainable growth at the heart of France’s G7 presidency; my colleagues and I have set out the diagnosis and the cure in a memo. Imbalance results from the dynamics of saving and investment. Capital has poured into US equities, where the “Magnificent Seven” account for roughly 33 per cent of the S&P 500; valuations are stretched, risk premiums thinner than on the eve of the 2008 financial crisis and more credit f lows through opaque non-bank intermediaries. US public debt, near 120 per cent of GDP, is rolled over in shorter maturities — and the buyer base is shifting in a worrying way as a growing share is absorbed by price-sensitive domestic investors and leveraged hedge funds, leaving the world’s most important safe-asset market more prone to sudden bouts of i...
