Frankly, higher US personal saving rates would not be a bad thing.

Savings rates shot up.

True, savings rates in emerging markets and oil rich countries have been increasing since 1970, and especially in the last few years, but this has been offset by declining saving rates in advanced countries.

Absent the willingness of large developing countries to run trade surpluses and high savings rates relative to investment, the asset bubble in the US leading to a rise in domestic consumption and a fall in the savings rate would have triggered inflation and higher interest rates.

The high saving rate of Chinese households reflects both the normal high rate of saving among younger generations and the fact that older generations had very little income and therefore did very little saving when they were young.

America s Saving Rate and the Dollar s Future

Without a fall in the dollar and the resulting rise in net exports, a higher saving rate and reduced consumer spending could push the US economy into a deep recession.

Although the capital stock will benefit from a higher household saving rate, the increase will be offset by more government dissaving as budget deficits remain high.

As inequality rises, consumption rates generally drop and savings rates generally rise.

There are other instruments available for increasing domestic saving and reducing consumption besides the fiscal balance.

High vacancy rates

Unfortunately, explaining saving rates is not an exact science.

For example, the uptrend in saving in China began at around the same time as its one child policy was implemented in 1979.

Engrained habits probably exlain more about China s saving rate.

The saving rate in China is the highest of any major country.

High figures persist for unemployment and underemployment.

T hat has to subtract growth and could cause core inflation to pick up.

I believe that the government will act on all of these reasons for high saving, making credit more widely available, introducing a health insurance system, and relaxing some of the down payment requirements.

Some part of the high saving rates in China since the early 1980 s might be due to the decline in public confidence about health care, retirement benefits, and education, and a weakened sense of job security.

This was World War II. Do you know why savings was so high?

Now it is five times higher.

This explains high economic growth rates.

Its savings rate has been distressingly low for decades.

Japan was long famous for having the highest saving rate among the industrial countries.

But there is a better way to put these surplus countries high saving rates to use.

In the early 1980 s, China s saving rate was twice as high.

Indeed, the government s key economic committee, the Central Work Committee, has concluded that after years of high growth and low inflation, China is on a route to high growth with high inflation.

So the US is now saving nothing and investing next to nothing. Were it not for its current account deficit (which records capital imports from abroad), the US would also be investing nothing.

While the rest of the world struggles to raise savings, China, with a savings rate in excess of 40 , struggles to get its people to consume more.

In other words, savings rates in Spain and other deficit countries in Europe had to drop once policy distortions forced up Germany s savings rate.

The difference between Chinese and US saving rates has been growing for decades.

And the rest of the world? A global savings glut would suggest that rebalancing the world economy requires policies to boost America s savings rate and to increase non US households consumption.

Higher household saving depresses consumption because it is the difference between households after tax income and what they spend.

Unemployment is 16 and rising.

Those experiencing rising and now double digit inflation will have to raise interest rates, while other high inflation countries will lose export competitiveness.

The Japanese government has been able to sell its bonds to domestic buyers because of the high rate of domestic saving.

There is also a related risk that private accounts would cause a further drop in the personal saving rate.

Apart from accounting for the global divergence in savings rates, tight credit constraints in China might explain the country s high, and rising, savings rate especially as the large rise in national savings is attributable mostly to household savings.

If a government attempts to push the unemployment rate too low, inflation will increase, and so, too, will inflationary expectations.

The number of deaths is projected to increase due to higher smoking rates and an aging population in many countries.

As food prices rise, so is hunger and poverty.

But the price for protecting workers and firms was slower growth and higher unemployment.

The increase in the crime rate resulted in mental pain and suffering for the victims of crime.

The result in Japan would then be rising real interest rates as the low private saving rate runs head on into large fiscal deficits.

But there would also be a positive effect on saving and thus on wealth next year and beyond.