ON GLOBAL FINANCIAL IMBALANCES
Milken: A number of countries around the world — the United Arab Emirates, Singapore, Norway, Taiwan — have built up tremendous reserves relative to the size of their country. Most of them have not made the mistake of Japan, where deploying that surplus within the country through, for example superfluous road or bridge construction, caused massive increases in prices in the 1980s.
All in all, there is at least $25 trillion worth of surpluses in the world today that is invested short-term. It is pretty hard to find anything to put a trillion dollars into except U.S. government and private bonds or mortgage-backed securities.
Where do you see this capital being deployed? Do you see it just compounding away, or do you see them following the mode maybe of Singapore where the government is creating its own industrial companies?