Between 1997 and 2007 advanced economies ran large and growing current account deficits while developing economies ran large and growing current account surpluses. These imbalances were primarily due to low and falling saving-to-GDP ratios in the United States and large and rising saving-to-GDP ratios in China and the Middle East.\ud \ud Low and falling saving-to-GDP ratios in the United States were primarily, but not entirely, due to the distortions that caused high saving-to-GDP ratios in the developing world. These high savings led to higher equity prices in the United States until 2000 and lower real interest rates after that. Both higher equity prices and lower real interest rates lowered saving and helped fuel a housing boom in the United States.\ud \ud Monetary policy can lower the real interest rate in the short run, but cannot systematically affect real interest rates in the long run. Thus, monetary policy cannot be blamed for the rise in house prices in the United States. If there was a bubble component in the price rise, monetary policy was not the appropriate tool to deal with the problem.\ud \ud Capital flowed into the United States because the United States was a relatively attractive place to invest and because of the dollar’s status as the world’s premier reserve currency.\ud \ud The rise in US house prices helped cause the financial crisis by leading to financial firms’ securitisation of mortgages. This removed their incentives to screen and monitor their bor