From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sat Oct 13 2007 - 08:24:08 EDT
Here's an old clip on the global savings glut from Business Week to illustrate: "The International Monetary Fund predicts that in 2005 the worldwide savings rate should hit its highest level in at least two decades. Surprisingly, even in the profligate U.S., businesses have been accumulating huge sums as undistributed corporate profits -- running at a record annual rate of $542 billion in the first quarter -- have almost doubled in the past two years. This corporate hoarding explains why the U.S. national savings rate, which includes governments and businesses as well as households, rose to 14.7% of national income in the first quarter, up from 12.8% two years ago. (...) Global savings -- which the IMF estimates at roughly $11 trillion in 2005, almost the size of the whole U.S. economy -- is the excess of the combined income of the world's nations over their combined consumption. (...) The reluctance to consume and invest is fueling enormous trade surpluses in Japan and Germany, in particular. The latest data from Japan show a current-account surplus of $171 billion for the year ended April, 2005. That's up from a surplus of $157 billion a year earlier. Germany, where domestic demand is flat and unemployment is in the double digits, is running a current-account surplus of over $100 billion over the past year. (...) What worries economists is that most of the savings is going to one country. According to Harvard University's Rogoff, the U.S. alone is soaking up as much as three-quarters of the excess global supply of savings." http://www.businessweek.com/magazine/content/05_28/b3942001_mz001.htm As you can see for yourself, in this article the "whole economy" is straightforwardly equated with GDP, taken to represent total economic activity, which is simply mistaken. Robert J. Samuelson has another take on the savings-consumption trade-off: "Generally, the flow of surplus global savings to the United States has caused Americans to spend more and save less." http://www.washingtonpost.com/wp-dyn/content/article/2005/04/26/AR2005042601394.html Thus, according to Samuelson, the arrow of causation is the reverse: it is not that foreign capital is imported because Americans save to little, but that Americans save too little because of the import of foreign capital.
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