One of the main problems in the global economy is the difference in savings rates between the US and China. Savings rates in China are exceptionally high. The consumer savings rate is around 30%, the highest since the government began experimenting with market reforms. In the US, savings are at -0.4%, the lowest since the Great Depression. China, with a GDP one-sixth of the US, saved $1.1 trillion, compared with savings of $1.6 trillion in the US. Consumption in the US is 71% of the GDP, compared with just under 50% for China.
             These savings rates cause many problems. Because the Chinese consumers save so much, their economy is dependent on exports. Exports and fixed investments are 75% of the Chinese GDP, and growing at 25% per year. This over reliance on exports can lead to the erection of protectionist trade barriers against Chinese goods.
             In the US, the lack of savings has created a large current account deficit, especially with export-dependent economies like China. The increased consumption is being paid for through the extraction of equity from homes. The result is that Chinese savers are subsidizing US overconsumption. In China, this leads to an excess money supply. This in turn leads to asset bubbles such as the bubble in property values in the major Chinese coastal cities. This excess liquidity also increases economic volatility in China, resulting in increased risk.
             The cycle perpetuates itself. In order to maintain the currency peg of the yuan to the dollar, China cycles its savings through dollar-denominated assets. This keeps US interest rates low, and fuels the American housing bubble. That bubble allows US homeowners to extract equity from their homes, fueling even more consumption.
             The author takes the view that the savings trends in these two countries are unsustainable. He proposes that the US must save more and the Chinese must spend more. In the US, a major campaign to boost savings will b...