In Wednesday's Wall Street Journal (Dec. 12), Alan Greenspan had a
unique op-ed piece. In the op-ed Greenspan points out that the global
equity market (read stock and bond markets) is $50 trillion in size.
This market has been growing at 12% per year for the past six years.
The U.S. part of the global equity market is roughly one-third.
The current global savings rate in the developed world is 33% of GDP. Savings as a percent of GDP have been growing at 5% per year. Such a high savings rate is only possible because wealthy people can not consume what they earn. That is certainly the case for the tens of thousands of people who have incomes in the tens of millions of dollars a year. Those people provide the global savings and the funds for investment.
Greenspan puts the two points together to say that no government can head off a speculative bubble nor control the flow of funds. There is so much money sloshing around the world that it almost makes up its own rules and it is desperately looking for investments.