Meanwhile, China s savings rate remains stubbornly high.

Its savings rate has been distressingly low for decades.

In fact, the household savings rate continues to rise.

A country s overall consumption rate is, of course, the flip side of its savings rate.

An economy s current account is the difference between its investment rate and its savings rate.

CAMBRIDGE The saving rate of American households has risen sharply since the beginning of the year, reaching 6.9 of after tax personal income in May, the highest rate since 1992. In today s economy, that is equivalent to annual savings of 750 billion.

The Asia Pacific region has the highest savings rate in the world, although intercountry variations in savings rates have been noticed.

Moreover, as Japan s society ages, the household savings rate will decrease dramatically.

Instead, it reflected a fall 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.

Second, it could absorb excess German savings by letting unemployment rise as local manufacturers fired workers (because rising unemployment forces down the savings rate).

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.

SMEs and households with net savings stand to gain the most from interest rate liberalization.

Moreover, India has the highest household savings rate in Asia, at 32 of disposable income.

In January 2005, the personal income tax rate was reduced to 24 .

By contrast, China had a fixed investment rate of 41.7 of GDP and a savings rate of 51.9 , reflected in a large surplus.

Another implication of this view is that the steep rise in savings in China is largely driven by a rise in the savings rate of middle aged Chinese (rather than a fall in the borrowing rate of the young).

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.

Conversely, the fall in savings in the US is largely due to higher borrowing by the young (rather than a fall in middle aged Americans savings rate).

In 2007, the United States had a savings rate of 14.6 of GDP, but an investment rate of 19.6 , generating a current account deficit.

As a result, the household savings rate has risen from zero to 4 of disposable income.

America s household savings rate was at levels not seen since the Great Depression, either negative or zero.

So bringing the savings rate down is necessary if domestic and external balances are to be achieved.

Of course, some worried about the collapse of the household savings rate, but few were overly concerned.

Of course, China s savings rate will also decline, but Japan s experience since the 1980 s demonstrates how a sharp fall in investment can generate large and persistent current account surpluses, even when the savings rate is falling and the currency is appreciating.

But what China really needs is a greater effort to promote domestic consumption and lower the savings rate.

In 1988, the household savings rate in China and the United States was roughly equal, at about 5 .

Some are talking about letting people own their social security contributions, in the form of personal retirement accounts, their health care through health savings accounts, and their education through educational savings accounts and school vouchers.

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.

With a savings rate of barely 4 of GDP, the average US household is unlikely to be over saving.

However, in a country with a large mass of effective savers, the savings rate can rise, rather than fall.

As political tensions in low savings countries grow, so will the risk of these countries abandoning the euro, causing the price that Germany will pay for its distorted savings rate to rise.

The absence of no money down mortgages might be more important than Confucian ethics in explaining China s high savings rate.

One sure way to reduce the savings rate in China would be to develop an American style mortgage market there.

Yet, by 2007, China s household savings rate had risen to a staggering 30 , compared to just 2.5 in the US.

The top personal income tax rate (also levied on capital gains), the sales tax rate, the corporate tax rate, and the gas tax are all at or near the highest of any state.

Of course, some worried about the collapse of the household savings rate, but few were overly concerned. In one of his last articles, Milton Friedman wrote that savings nowadays took the form of houses.

Surplus Chinese savings made possible America s credit expansion between 2003 2005, when the federal funds rate (the overnight rate at which US banks lend to one another) was held at 1 .

53. Reaffirms that the vacancy rate is a tool for budgetary calculations and should not be used to achieve budgetary savings

30. Reaffirms that the vacancy rate is a tool for budgetary calculations and should not be used to achieve budgetary savings

Currency appreciation, Japan argued then and China argues now, is unlikely to result in a significant current account adjustment, which requires addressing not only China s high savings rate, but also low savings in the US.

Brown s ballot initiative this November would raise California s top personal income tax rate to 13.3 , the nation s highest.

Real personal consumer spending grew at a robust 4.4 rate, as spending on consumer durables soared by 21 .

Income growth and a lower household savings rate are essential to the shift in China s growth model, and each presupposes key reforms.

The last time China saw such high growth in domestic investment, the savings rate was not as high as it is now.