Signs of extremely benign financing conditions are plentiful, ranging from low long-term interest rates to historically narrow credit spreads on risky assets. Many observers call this a liquidity glut, thereby implicating central banks and their accommodative policies. But in my view, these conditions may primarily be driven by a global shortage of hard assets.

My argument relies on two global ingredients. The first is that, in spite of substantial worldwide income growth, if anything there has been an increase in the desire to save out of it. In emerging markets where income growth is rapid, savings increase. Household consumption in developing countries takes time to catch up with higher incomes – either because households take time to be confident that the increase is permanent or because credit constraints prevent them from borrowing to consume against future incomes.