Paul Krugman has a column in Monday’s New York Times describing the background to the current economic crisis.  The piece, entitled “Revenge of the Glut” points a finger at the US’s huge trade deficit, but notes that this deficit is (partly) the result of huge capital inflows from other economies, especially in Asia, which has what might be rudely described as a savings glut. In effect, the current crisis reflects the imbalance between our current account deficit and China’s surplus.  The Economist had a similar piece (may be behind a paywall) back on 22 January that looked at the issue in much more technical detail.

This deep explanation doesn’t take away culpability from lax regulators or greedy banks or foolish homebuyers, of course.  But it does explain the conditions under which these actors — which are, after all, always present; when aren’t there fools or greed? — were allowed to seize center stage and disrupt the whole show.

More importantly, there doesn’t seem to be a good solution to these structural problems.  The global imbalance has not changed, although our public sector has emerged as “the newest consumer of last resort” as The Economist says, after the dotcom and housing bubbles, of all that capital sloshing around the efficient but obviously brittle global financial system.

If all that is too abstract for you, consider this question, posed in The Economist piece:  “what would a well-regulated financial system have done with the money?”

Answer that one, my friend, and you’ll have billions flowing your way, lickety-split.