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An Alternative View of Finance, Saving, Deficits, and Liquidity


  • L. Wray


This article contrasts the orthodox approach with an alternative view on finance, saving, deficits, and liquidity, with the goal of shedding light on the current global financial crisis. It first briefy summarizes the orthodox view according to which global savings financed the U.S. speculative boom. Excessive growth of U.S. indebtedness was unsustainable, and matters were made worse by Fed monetary ease. The alternative view is based on Keynes's approach to finance and liquidity preference, integrated with the "modern money" view of currency sovereignty. It is argued that investment, budget deficits, and current account deficits create saving; on this view it is more revealing to think of U.S. current accounts as financing global dollar savings. Finally, an alternative interpretation of the causes of, and solutions to, the global financial crisis are offered.

Suggested Citation

  • L. Wray, 2009. "An Alternative View of Finance, Saving, Deficits, and Liquidity," International Journal of Political Economy, Taylor & Francis Journals, vol. 38(4), pages 25-43.
  • Handle: RePEc:mes:ijpoec:v:38:y:2009:i:4:p:25-43 DOI: 10.2753/IJP0891-1916380402

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    References listed on IDEAS

    1. Luiz Carlos Bresser-Pereira & Carmen Augusta Varela, 2004. "The second Washington consensus and Latin America's quasi-stagnation," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(2), pages 231-250.
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    Cited by:

    1. Faruk Ülgen, 2012. "Financial instability and functional finance : a Lerner-Minsky perspective," Post-Print halshs-00843754, HAL.
    2. Jafri, Juvaria, 2014. "Should we be Austere? A Normative look at Public Debt," MPRA Paper 63337, University Library of Munich, Germany.
    3. Sergio Cesaratto, 2012. "Controversial and novel features of the Eurozone crisis as a balance of payment crisis," Department of Economics University of Siena 640, Department of Economics, University of Siena.

    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements


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