The economy may be hot, but the dark side is a low savings rate and high levels of personal debt.
He was worried about the unsustainability of a low savings rate, government deficit and current account deficit, none of which caused our current crisis.
Japan had a high savings rate for years but has suffered dismal growth over the past two decades.In the short term, a simpler explanation may be that a low savings rate has left American consumers with a heavy debt burden.
They have been less forthcoming about the longer-term challenges facing the economy, from a low savings rate to the related problem of an aging population and rapidly rising costs of the two big entitlement programs, Social Security and Medicare.
In part, the problems are also a product of a country with a low savings rate whose banks and financial institutions have relied on foreign sources for half of their funding.
A low savings rate, high bank-reserve requirements and the government's considerable funding needs (it runs a budget deficit each year, despite that 36% tax burden) make credit expensive.
This lack of effective financial intermediation, combined with a low savings rate, means that the economy continues to face capacity constraints.Mindful of these funding shortfalls, the government has sought to attract greater foreign direct investment (FDI).
Alternative forms of income, like stock gains and increases in home prices, are not factored into the savings rate, but economists say a low savings rate is a worrisome sign that consumers are still willing to spend more than their income allows.
While some countries with very high savings rates, such as Japan, have managed to live with and finance such a high debt burden, the United States, which has a low savings rate — we love to shop — might well have trouble finding enough foreigners willing to buy Treasury bonds.
In other words, to make up for a low savings account interest rate, your personal savings rate must be higher, not lower, in order for you to meet your long-term savings goals.
