Tag Archives: china

Deleveraging the U.S. Economy

The Chinese government, the biggest buyer of U.S. debt, expressed concern about American deficits and its impact on U.S. Treasury obligations – a budget that will raise the national deficit to nearly $2 trillion dollars. That’s $2,000,000,000,000.

Bernanke views this intervention strategy as critical and necessary to avert a deeper downturn. But as you know, spending money you don’t have can come with it some dire consequences.

This economic jump start strategy of spending America out of this downturn will need to be repaid one day, hopefully from economic growth and fiscal restraint. But deficits generally spawn higher inflation, higher interest rates and a weaker economy.

Thrift, the New Normal

A loyal reader sent in the following article from Newsweek, Tight-Fisted Is Back In Style. A perfect opportunity to look at a positive light given the grim economic climate. While the shift to thrift is natural in difficult times, it is this embracing of savings that will save us from the perils of financial collapse.

Already, once spendthrift Americans have hiked their personal saving rate from near zero, where it’s hovered for several years, to almost 3 percent in November. Merrill Lynch chief economist David Rosenberg expects the rate will soon rise to 8 percent and beyond, levels last seen 20 years ago.

In historically thrifty countries like China and Germany, high saving rates have already drifted even higher. China’s savings rate of 20 to 30 percent is creeping even higher. In Germany the savings rate has hit a 15-year high of 11.4 percent of personal income and is expected to rise to 12.5 percent next year, according to the German Bundesbank.