Macro imbalances in trade accelerated dramatically over the past fifteen years, in part as a result of loose US monetary policy. The emerging economies of Asia and the oil-exporting countries accumulated large current account surpluses, which were matched by large current account deficits in the US, as well as the UK, Ireland, and Spain. High savings in Asia, especially in China, have their origins in the region's 1997 financial market crash. In response, Asian emerging economies turned to hoarding reserves so as not to become dependent on IMF loans in subsequent hard times. As high savings in Asia exacerbated the US debt burden, this further perpetuated global trade imbalances (Eichengreen, 2007a, 2009; Fitoussi, 2009; Rajan, 2010).
Weakened safety nets
Welfare provision, or rather lack thereof, played an important role behind the growing private indebtedness in the US economy since the 1980s. Growing job insecurity and the general stagnation of wages of the American middle class from the late 1970s were compensated by easy credit and subprime mortgages, allowing the squeezed middle to keep spending patterns up by reductions in household savings and mounting private indebtedness (Crouch, 2008; Atkinson, 2009). In other words, access to credit and subprime mortgage loans by low-income households replaced the welfare state as the basis of the American social contract. According to the former chief economist at the IMF, Raghuram Rajan, weak social safety nets, growing inequality, and increasingly unequal access to education and privatized healthcare have, since the 1980s, deepened the fault lines of the overleveraged US economy, forcing in turn consecutive American governments and the Fed to pursue extremely expansionary fiscal and monetary policies (Rajan, 2010).