Internal And External Imbalances And The Formation Mechanism Of U.S. Financial Crisis

U.S. Subprime Mortgage Crisis has finally developed into financial crisis in September 2008. Financial crisis has created huge impact on world economic development. Many U.S. financial institutions go bankruptcy, it economic growth rate is at low ebb. The U.S. economy's downturn makes the world stock markets plunged and world economic development goes into the trough. Meanwhile, there has been exists economic imbalances in the long-term process of U.S. economic development. The U.S. economic imbalances include internal imbalances and external imbalances. The internal imbalance is represented by the savings deficits and fiscal deficits, while the external imbalance is represented by current account deficits.In this paper, we make a study on the relationship between internal and external imbalances and the formation of U.S. financial crisis. The U.S. internal imbalance is performed by the personal savings deficits and the government's budget deficit, while the U.S. external imbalance is manifested by current account deficit. The U.S. residents'ahead of consumption and borrowing consumption is an important reason for the formation of personal savings deficit, while the U.S. government's spending is far greater than income is an important reason for the formation of the fiscal deficit.There is a close link between internal and external imbalances: internal imbalances are the root causes of external imbalances, internal imbalances exacerbated by the development of external imbalances. Because of "Meada conflict" exists, the U.S. government pay more attention to internal imbalances, but pay less attention to external imbalances.The author uses qualitative method to analysis the performance of U.S. internal imbalances. The author uses quantitative method to analysis external imbalances in order to learn the causes of U.S. current account deficits. Meanwhile, for the development of internal and external imbalances is a dynamic process, the author has integrated balanced analysis and historical analysis in order to better analyze economic imbalances and financial crisis and their relationship.There are three aspects of U.S. credit crisis: savings deficit which is performed by individual debt, fiscal deficits which show by government's debt and current account deficit which show by whole community liabilities. U.S. government keeps their consumption and economic growth through capital financial account surplus.There is closely relationship among current account, GDP and investment. The ?high investment rate and government expenditure is an important reason for U.S. external imbalances. This paper argues that there is a big risk to exist in U.S. economic growth and this growth way is unsustainable. U.S. residents, government and society's long-term accumulation of debt led to the creditors' doubt about debt repayment capacity, so they in turn stop finance United States' consumption, which finally led to U.S. financial crisis. We can say that internal and external imbalances have prompted the outbreak of financial crisis. Financial crisis is the performance of U.S. unsustainable economic growth.Through the performance of internal and external imbalances and relationship between internal and external imbalances, the author argues that there is a big risk for the U.S. economic growth way and this growth way is unsustainable. Internal and external imbalance in the United States is a typical "Ponzi scheme", while financial crisis is the overall outbreak of unsustainable mode of U.S. economic growth way.The innovation lies in: In the analysis of internal imbalances, the author use qualitative method to describe the U.S. savings deficit, fiscal deficit and the relationship between them and highlight when the internal imbalance is unsustainable. In the analysis of external imbalances, the author use inter-temporal approach of current account to obtain the predicted value of current account. Then, the author makes comparison between the actual value and the predicted current account value before and after the crisis. The results show that before financial crisis happen, the gap between predicted current account value and actual value suddenly increase, while the crisis has reduced the gap reduce after the crisis happen. Therefore we can predict financial crisis by using the gap between predicted current account value and actual value.According to the relationship between internal and external imbalances and financial crisis, the article put forward to recommendations to address the financial crisis and avoid the recurrence of financial crisis. These suggestions include improving the U.S. savings and investment imbalances situation, improvement of international monetary and financial system, coordination of national financial regulation, as well as optimize the national economic structure. For china, U.S. financial crisis is an opportunity and challenge, but the opportunity is outweigh the challenge. In response to financial crisis, we should strive to expand domestic demand, improve the situation of excessive dependence on foreign trade, and seize the opportunity to optimize and upgrade our economic structure.The article's structure as follows: First, we analyze the performance of the U.S. internal and external imbalances and their relationship. Secondly, we make a study on U.S. internal imbalances. Personal savings deficits and government budget deficits are the causes and performance of U.S. internal imbalances. The occurrence of internal imbalances and financial crisis is the common result of Personal savings deficits and government budget deficits. Thirdly, we use inter-temporal approach of current account to make a study on U.S. external imbalances. We get the predicted values using empirical analysis of the current account. Then we make a comparison between the predicted value and actual value to make sure the relationship between current account imbalance and financial crisis. At last, we make a summary and put forward policy recommendations to address financial crisis.