China s national saving rate including household saving and business saving is now about 45 of its GDP, which is the highest rate in the world.

The household saving rate has collapsed in recent years, falling to less than 2 .

A variety of forces have contributed to a continuing decline in Japan s household saving rate.

The nation s net household saving rate is the difference between the saving of the savers and the dissaving of the dissavers.

The drop in the saving rate can be readily traced to a massive increase in the rate of household consumption.

But, with the current low rate of household saving, the cycle of rising deficits and debt will soon make national saving negative.

CAMBRIDGE The household saving rate in the United States has tripled in the past three years.

The aggregate saving rate of the household sector reflects the difference between the saving of the savers and the dissaving of the dissavers.

CAMBRIDGE The household saving rate in the United States has tripled in the past three years. Why?

Household saving is only one part of net national saving.

The recent rise in the US household saving rate reversed a long term decline that began 25 years ago.

With a savings rate of barely 4 of GDP, the average US household is unlikely to be over saving.

Before it began rising last year, the US household saving rate had been declining for more than 20 years in response to the increasing level of household wealth.

The increase in the household saving rate reduces America s need for foreign funds to finance its business investment and residential construction.

The combination of household and corporate saving brings total private saving to 7.5 of GDP.

Since after tax personal income accounts for about 75 of GDP, a household saving rate of 6 translates into just 4.5 of GDP.

While a 6.9 saving rate is not high in comparison to that of many other countries, it is a dramatic shift from the household saving rate of less than 1 that the United States experienced in 2005, 2006, and 2007.

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.

Taken by itself, today s 750 billion annual rate of household saving could replace that amount in capital inflows from the rest of the world.

In other words, the government s negative saving is being financed by the private and household sectors positive saving.

America s Saving Rate and the Dollar s Future

Saving. A domestic saving rate in excess of 50 has served China well.

But this direct link between higher household saving and a lower dollar will only be forged if higher household saving is not outweighed by a rise in government dis saving, i.e., by a larger government deficit.

In any year, some households are savers and others, especially retirees, are dissavers that use past saving to finance current consumption. The nation s net household saving rate is the difference between the saving of the savers and the dissaving of the dissavers.

Although the capital stock will benefit from a higher household saving rate, the increase will be offset by more government dissaving as budget deficits remain high.

The potential future clash between larger fiscal deficits and a low household saving rate could have powerful negative effects on both Japan and the global economy.

The net saving rate fell to near zero.

The household saving rate therefore continued to fall until it was below 5 at the end of the 1990 s and reached just above 2 in 2009.

Engrained habits probably exlain more about China s saving rate.

In fact, the household savings rate continues to rise.

Instead, it reflected a fall in the personal saving rate.

Since the peak annual rate of capital inflow was 803 billion (in 2006), the increased household saving has the potential to eliminate almost all of America s dependence on foreign capital.

With a falling rate of household saving and the prospect of new fiscal deficits, the current account will soon be negative, forcing Japan to sell its debt to foreign buyers.

That figure matches closely the fall in household saving and the resulting increase in consumer spending.

The high saving rate of Chinese households reflects both the normal high rate of saving among younger generations and the fact that older generations had very little income and therefore did very little saving when they were young.

The United States has no compulsory saving plan, and it has an abysmally low in fact, negative personal saving rate.

The saving rate in China is the highest of any major country.

In the early 1980 s, China s saving rate was twice as high.

Moreover, as Japan s society ages, the household savings rate will decrease dramatically.

CAMBRIDGE Japan is heading toward a savings crisis. The potential future clash between larger fiscal deficits and a low household saving rate could have powerful negative effects on both Japan and the global economy.

No leading country in world history has persistently maintained a negative saving rate.

There is no way to predict what the saving rate will do next.

That would leave a net national saving rate of just 2.5 of GDP.

Fears of future wealth taxes could discourage entrepreneurship and lower the saving rate.

However, aging will keep the saving rate from falling at the same pace.