Global Imbalances and the Accumulation of Risk

In his latest Policy Brief, Daniel Gros gives a new angle on why the existence of current account ‘imbalances' should provoke the greatest financial crisis in living history if the raison d'être of a financial system is to deal with imbalances (between savers and investors). He argues that one has to take into account the way current account deficits are financed and how flow imbalances accumulated into large stock disequilibria. In his view, the securitisation leading to the crisis was the product of a maturity mismatch between foreign savers seeking short-term assets and excess supply of long-term US mortgage debt