We saw that former Federal Reserve Chairman Ben Bernanke argued that low interest rates in the United States during the mid-2000s were due to a global savings glut rather than to Federal Reserve policy. In an interview with Albert Hunt of Bloomberg Television, Alan Greenspan, who was Federal Reserve Chairman from August 1987 through January 2006, made the following similar argument:
Behind the low level of long-term rates: a global savings glut as China, Russia and other emerging market economies earned more money on exports than they could easily invest.
a. Use two loanable funds graphs to illustrate Greenspan’s argument that a global savings glut caused low interest rates in the United States. One graph should illustrate the situation in the United States, and the other graph should illustrate the situation in the rest of the world.
b. Why should Alan Greenspan care about a debate over the causes of low interest rates?