Thought the global financial crisis in 2008 was caused by subprime bonds, collateralized debt obligations (CDOs) and other Wall Street engineering? Think again.
According to a new study, China, not Wall Street bankers, was responsible for the global crisis and the ensuing recession.
The study from the Erasmus Research Institute of Management says the saving frenzy of the Chinese created the cheap money, which fuelled the U.S. housing bubble and its collapse.
Heleen Mees, writer of the study and assistant economics professor at Tilburg University in the Netherlands, says that exotic mortgage products could hardly have been the cause of the U.S. housing market bubble and the its ultimate collapse.
According to the study, mortgages with those special features - like mortgage-backed securities and CDOs - accounted for less than five percent of the total number of new mortgages from 2000 to 2006.
Mees, author of three books and contributor for Foreign Policy magazine, says it was the "loose" monetary policy of the Federal Reserve at the beginning of the decade which sparked a refinancing boom in the U.S. in 2003 and 2004 and a growth in personal spending. This U.S. spending binge fuelled economic growth in China and in turn boosted total savings in that country.
The study, which compared financial market responses to U.S., Chinese and German quarterly GDP from 2006 through 2009, shows that the Chinese have been saving more than half of their GDP during that time. Those savings were heavily skewed towards fixed income assets like government bonds and depressed interest rates worldwide from 2004 on.
This allowed for interest rates around the world to fall, and sparked a boom in the U.S. housing market due to the availability of cheap money.
The study also argues that Ben Bernanke, chairman of the U.S. Federal Reserve, set the world up for the Great Recession by providing the "intellectual backing for the aggressive rate cuts in the early 2000s."
With so many books out on the financial crisis, Mees recommends people read Economic Development with Unlimited Supplies of Labor by Arthur Lewis and she says people should avoid one of the blockbusters on the crisis, The Big Short by Michael Lewis.
Liza Jansen, special for CNBC.com / Twitter: @lizajansen
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