One topic I didn't have a chance to pursue and that has puzzled me and led to some discussion among friends has to do with savings in China, the flow of capital into the US (and the west in general).
We have seen this phenomenon at work for quite some time. There have massive capital inflows into the US as China exports more goods in exchange for coloured pieces of paper.
In the interview session, I asked Jim Bullard, "Why have global interest rates been so low for so long?" He said "I honestly don't know for sure, but we can go back to Alan Greenspan's statement that there has been a glut of savings in the world, and it started in about the year 2000." In other words, he attributes the long period of low interest rates to a dramatic increase in the supply of lendable funds.
When I asked Charley Plosser the same thing, he looked at the demand side instead. He said that there are just no better options out there. This is consistent with the position of many people who see the US gubmnt debt as a safe haven, which I guess it is in comparison with so many other economies.
But what will happen if/when China faces a credit crunch, as seems possible if not likely? One of my former students who works in finance told me that won't be a problem because the world is SO awash with liquidity from everywhere that even if the funds from China are diminished, it won't make much difference.
I'm not sure I agree. I see a potential black swan out there. If China were to suddenly face a big liquidity crunch, that would affect not only them, but would withdraw a sizeable chunk of liquidity from the US and other economies, which would surely drive interest rates up. The only question is, "how much?"
And to that extent, I'm not nearly so optimistic for the long run as many of the speakers were at the summit.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.