♠ Posted by Emmanuel in Cheneynomics,Credit Crisis
at 4/14/2010 12:10:00 AM
Believe it or not, I am actively trying to lessen my China coverage as it has become rather excessive. However, I was startled to read this assertion by the FT's Martin Wolf while "Evaluating the Renminbi Manipulation":Mr [Stephen] Roach [of Morgan Stanley] also points to today’s negligible net US savings. But this, too, is the result of a fiscal offset to a surge in private sector savings surpluses. Why was this needed? The answer is that, with a huge structural current account deficit, a rise in private savings in the US would otherwise have created a depression. In sum, savings surpluses are a policy variable, not a given.Unfortunately, the esteemed chief economics commentator for the FT is mistaken on two straight assertions. Rather than engage in armchair theorizing, I decided to pay a visit to the Bureau of Economic Analysis and its National Income and Product Accounts (NIPA) to assess the veracity of these statements for myself. As you can see, the chart above plotting BEA data presents quarterly data for four things: personal saving, corporate saving (in the form of retained earnings), and government saving (the difference between revenues and expenditures). Taken together, these three comprise net US saving. Clearly, we observe two things: First, there are no "net savings" to speak of in America at present but dissavings. Contrary to popular belief, the US was actually saving during the quarters Q1 2007 to Q1 2008. Since then, the US has been dissaving. The implication is that, saving-wise, the US is worse off now than prior to the implosion of the housing bubble. Yes, the US savings picture is so bad that the subprime crisis period can now be regarded as "the good old days." Some progress. Call it economic Iraq or Afghanistan and you wouldn't be far off the mark as it's another typical Yankee misadventure in a very long line of them. If Larry Summers won't tell you that, I will.
Second, there is no "fiscal offset" to a surge in private sector savings. As I said before, US household savings rates are hardly improved being stuck in the low single digit range, while retained earnings are not particularly healthy, either. Now, Messrs Merriam and Webster define offset to mean "something that serves to counterbalance or to compensate for something else." As you can clearly see for yourselves, government deficits are so massive as to tip the whole of America deep into the red. The country is simply haemorrhaging money with no end in sight. Again, whatever measly savings spending-addled Yanks have are more than offset by the US government spending like there's no tomorrow.
So, if you don't like the unvarnished truth about the morass America finds itself in, well, there are any number of outlets that will give you infinite spins on the "deficits don't matter" theme. I, however, prefer not to be gullible enough to be taken by simple misstatements of readily verifiable facts. The honest thing to say about American savings is that things are getting worse and have few prospects for getting better. You can take to the bank--unless you're American of course, in which case you probably don't have any savings [tee-hee].
Given that the rest of Martin Wolf's feature makes several good points--this gaffe aside--I will refrain from giving him a Carl Spackler Award this time around. However, I remain vigilant as even he pulls out whoppers every now and again. Why a non-economist and a non-native English speaker besides needs to point these things out troubles me, however.
