Global Imbalances and the Financial Crisis

As the economic crisis spreads from financial markets to real economies in countries around the world, governments have understandably focused on short-term measures to contain the collapse. Constructing stimulus packages and financial bailouts to address the immediate problems has been the policymakers' priority for foundational recovery. Detailing another proximate cause of the crash —the problem of global imbalances between savings and investment in major countries —former IMF official Steven Dunaway drafts a proposal to rebuild international finance's structural foundations. Fiscal diplomacy, through the Group of Twenty (G20) process, represents an important opportunity to make the world economy sounder and to prevent future problems for the financial system. But if nothing is done to correct global current account deficits, Dunaway warns in this important book, the imbalances will simply build up again as the world economy seemingly recovers. In time, the enlarging deficits will become a major contributing factor to the next global crisis.