In an influential speech, before he was Chairman of the Federal Reserve, but while
he was a member of the Federal Reserve Board, a Governor of the Federal Reserve,
Ben Bernanke proposed that one cause of what he called this conundrum.
Was a global savings glut from emerging market and
commodity rich countries that had large current account surpluses.
That is, the rest of the world
really liked buying safe government assets in the United States.
And thus, the demand for those assets was very, very high, and
even though there was a pumping of liquidity into the economy for
some time by the US government, in an attempt to raise interest rates
later to pull out and discourage the credit conditions from getting overheated.
There was still an enormous, enormous demand for
these assets, long term government bond assets from other countries,
that kept effectively the price of those assets high.
And when the price of a bond is high, the return on the bond,
the rate on the bond is low.
And essentially, it was this global savings glut Proposed Bernanke,
that was keeping the link from between short term and
long term interest rates from being as strong as it had been historically.
Next, we'll look at some data on this.
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