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.

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 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.

China must recognize that high savings will not provide stable growth over the long run.

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.

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.

Short run exchange rate adjustments simply cannot fix negative long term trends.

US private savings are also slightly negative, and an increase might lead to a slowdown in the short run.

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.

Nor would a run on savings deposits occur, given the official guarantees that they remain unaffected by a bank s insolvency.

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 .

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.

But when a country s growth rate continues to increase, its saving rate would increase faster than its investment rate, so it is more likely to run a current account surplus.

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.

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.

The March unemployment rate of 8.2 was nearly three percentage points above what most economists would consider a desirable and sustainable long run level rate.

Household savings are finally beginning to rise, which is good for the long run health of household finances, but disastrous for economic growth.

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.

And, despite a more competitive exchange rate, the US continues to run a large current account deficit.