Introduction:

The global financial imbalances associated with the U.S. trade deficit are widely viewed as an important causal factor behind the financial crisis of 2008 and the Great Recession. This paper examines three different explanations of the global financial imbalances. It begins with the neoliberal globalisation hypothesis that explains the imbalances as the product of the model of globalisation implemented over the past thirty years. It then examines the saving glut and reserve currency hypotheses. The paper concludes by arguing that both the saving glut and reserve accumulation hypotheses are inconsistent with the empirical record and both provide a misleading guide for policy.