Economic fallacies seldom die; they lie in wait for the next opportunity to confuse and deceive. So it is with the global saving glut thesis that was recycled most famously by US Fed governor Ben Bernanke in a speech last March. The savings glut is held out, now as in the autumn of 1993, as an explanation for historically low nominal yields across the major government bond markets. It was mistaken then and it is mistaken now. The key question that every professional investor should pose when confronted with a supposed 'new insight', is whether it passes the liquidity versus leverage test.
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