China s gross saving rate (the percentage of GDP that is not consumed immediately), which includes both public and private saving, is around 50 . By contrast, the saving rate in the United States is the lowest of any major country roughly 10 of GDP.

America s massive trade deficit is a direct consequence of an unprecedented shortfall of domestic saving. The broadest and most meaningful measure of a country s saving capacity is what economists call the net national saving rate the combined saving of individuals, businesses, and the government.

The United States has no compulsory saving plan, and it has an abysmally low in fact, negative personal saving rate. But the government is loath to consider a mandatory saving plan.

The difference between Chinese and US saving rates has been growing for decades. In the early 1980 s, China s saving rate was twice as high.

The future reduction in China s saving will therefore mean a reduction in China s current account surplus and thus in its ability to lend to the US and other countries. If the new emphasis on increased consumption shrank China s saving rate by 5 of its GDP, it would still have the world s highest saving rate.

Whether interest rates do rise will also depend on how US saving and investment evolves over the same period. America s household saving rate has risen since 2007 by about 3 of GDP.

Despite their declining incomes, households raised their spending in early 2012 at a rapid pace by cutting their saving rate to just 3.7 . Without further declines in the saving rate from this very low level, consumer spending will not continue to grow as robustly.

The broadest and most meaningful measure of a country s saving capacity is what economists call the net national saving rate the combined saving of individuals, businesses, and the government. It is measured in net terms to strip out the depreciation associated with aging or obsolescent capacity.

Since 1955, Singapore has taken a direct approach a compulsory national saving plan, which generates very high saving rates. The contribution rate for the Central Provident Fund is now 34.5 for people with higher incomes.

America s net national saving rate the sum total of household, business, and government saving (adjusted for the depreciation of aging capacity) currently stands at 2.5 of national income. While that is better than the negative saving rates of 2008 2011, it remains well short of the 6.3 average of the final three decades of the twentieth century.

As he moves his savings rate down, it means that he's saving zero when it's all the way here at the left.

Another indication of the role of wealth in fueling higher consumer spending is the decline in the household saving rate. Total household saving as a percentage of disposable income fell from about 6 in 2011 and 2012 to just 3.8 in the most recent quarter.

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China currently saves and invests half of its GDP, but, as its workforce shrinks in the coming years, its investment rate is likely to fall sharply. However, aging will keep the saving rate from falling at the same pace.

With a high household savings rate of around 30 of disposable income, per capita disposable income amounts to roughly half of per capita GDP. Expanded social security programs and a richer menu of saving and investment options could go a long way toward reducing precautionary saving and boosting consumption.

The net national saving rate (businesses, households, and the government combined) stood at just 2.9 of national income in mid 2015, less than half the 6.3 average over the final three decades of the twentieth century. As China shifts from surplus saving to saving absorption using its surpluses to build a safety net for the Chinese people rather than subsidize the savings of Americans a saving short US will find it tough to fill the void.

Compared to countries with very slow growth rates, countries with reasonably high growth rates should borrow. 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.

Since the fourth quarter of 2008, America s net national saving rate has been negative in sharp contrast to the 6.4 of GDP averaged over the last three decades of the twentieth century. Never before in modern history has the world s leading economic power experienced a saving shortfall of such epic proportions.

China s high and rising urban saving rate in a climate of vigorous per capita income growth reflects a persistent preference for precautionary saving over discretionary consumption. Unfortunately, this is a rational response to the uncertain future faced by the majority of Chinese families, underscored by the lack of a reliable social safety net.

All of this will mean a reduction in national saving and an increase in spending by households and the Chinese government. China now has the world s highest saving rate, probably close to 50 of its GDP, which is important both at home and globally, because it drives the country s current account surplus.

We think about saving. We know we should be saving.

The Japanese government has been able to sell its bonds to domestic buyers because of the high rate of domestic saving. The excess of saving over investment has given Japan a current account surplus, allowing the country to finance all of the government borrowing domestically, with enough left over to invest in dollar denominated bonds and other foreign securities.

The saving rate is the lifeblood of any economy, because foreigners cannot be expected to finance capital investment forever. But all the talk of wondrous returns could spur what psychologists call wishful thinking bias, leading people to believe that their personal accounts will be so valuable in the future that outside saving is unnecessary.

No leading country in world history has persistently maintained a negative saving rate. Trade deficits with China or any other country are part of the price that America pays for its unbridled profligacy.

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Differences in saving rates matter a lot, and must be a major reason that China s annual economic growth rate is now a full six percentage points higher than in the US. If people are saving half their income, their investments in capital have the potential to propel the economy at a rapid pace.

However, aging will keep the saving rate from falling at the same pace. This differential will generate large external surpluses that will transform China from the world s factory into the world s investor.

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Even more significant, shifting income from state owned enterprises to middle class workers and increasing consumer spending will reduce China s enormous saving rate. Since a country s current account surplus is the difference between its national saving and its national investment, China s current account surplus is likely to continue to shrink in the coming years.

It's also a massive saving of resources.

One out of 10 are saving enough.

I'm talking about the topic of saving.

Who has fed them, saving them from hunger and made them safe, saving them from fear.

Who has fed them, saving them from hunger and made them safe, saving them from fear.

When all of these reforms are realized, China s national saving rate may be reduced to 45 , from 51 currently. That will have a very significant effect in terms of reducing the current account surplus, which reflects net national savings.

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