Commission on Growth and Development

Items in this collection

Now showing 1 - 2 of 2

Eight Reasons We Are Given Not to Worry About the U.S. Deficits

(World Bank, Washington, DC, 2009) Frankel, Jeffrey

The large U.S. current account deficit over the last decade-and the corresponding surpluses in China and elsewhere-has been interpreted in two very different ways. Many mainstream economists view the phenomena as primarily the outcome of a low rate of national saving in the United States, beginning with a large budget deficit (the other half of the 'twin deficits'). In this first view, the current account deficit is unsustainable, and will eventually result in a sharp depreciation of the dollar. But this unsustainability view has been challenged by a variety of other economists, with equally impeccable credentials. This paper enumerates eight arguments that they have given as to why we need not worry about the current account deficit. The paper is skeptical of all eight, and sides with the unsustainability view. But they deserve a hearing. The eight are: 1) the siblings are not twins; 2) alleged investment boom; 3) low U.S. private savings; 4) global savings glut; 5) its a big world; 6) valuation effects pay for it; 7) intermediation rents pay for it; and 8) second Bretton woods.
The U.S. Subprime Mortgage Crisis: Issues Raised and Lessons Learned

(World Bank, Washington, DC, 2008) Jaffee, Dwight M.

The subprime mortgage crisis ranks among the most serious economic events affecting the United States since the great depression of the 1930s. This study analyzes key issues raised by the crisis at three levels: (i) issues directly and specifically relating to subprime mortgage lending; (ii) issues relating to the securitization of subprime mortgages; and (iii) issues affecting financial markets and institutions. These issues are fundamental to risk bearing, sharing, and transfer in financial markets and institutions around the world. Many of the issues raised by the U.S. subprime crisis also apply to high-risk loan markets in developing countries. The framework applied in the paper analyzes subprime mortgage lending as a major financial market innovation. Although conditions were conducive for subprime lending to arise as a financial innovation, financial innovations are necessarily risky undertakings, all the more so when they create new classes of risky loans and securities. The lessons learned from the crisis can thus be usefully applied to issues of the growth and development of emerging economies, as well as pointing the way to the design of new and efficient policies for subprime lending in the developed economies.