"Last year, the Chinese personal saving rate was 40%, according to recently released government figures. The Chinese saved $1.74 trillion in 2005, up 11% from 2004. Americans saved nothing, yet our net worth rose $5.0 trillion to a record $51.1 trillion over the four quarters through Q3 2005.
America is one of the few countries in the world where you can get rich without saving a dime. Americans have lots more opportunities for capital gains (both realized and unrealized) on their assets than the Chinese. That's because we have more assets and their value tends to increase along with the income they generate (stocks, rental properties, and privately held businesses). Some of our assets, particularly our homes, tend to go up in value along with the income we earn. Many Americans have enjoyed huge capital gains on their homes, and some have extracted these gains -- which are tax free up to $500,000 -- and put them in financial assets. Over the last four quarters through Q3 2005, homeowners' equity rose $1.4 trillion and Americans extracted more than $500 billion in home equity. This may be one of the main reasons why the saving rate has dropped in recent years. Is there something wrong with this picture? If I save 100% of my capital gain in real estate and 0% of my earned income, am I living beyond my means? Obviously not. However, homebuyers have been driving up home prices, taking out larger and larger mortgages, which is the major source of the capital gains realized by home sellers. Let's say that the Chinese, with their extraordinary saving rate, financed all of these mortgages by purchasing US mortgage-backed bonds. Of course, this could all end badly with a global recession if US home prices drop, if US consumers increase their saving rate, and if the Chinese stop buying our securities. This has been the pessimists' story for at least the past two years. I think they will be wrong again in 2006. But, then there is always 2007, which is when George Soros expects a recession. I told the folks at dinner last night that I see the next recession starting September 15, 2008 -- a few weeks after the Olympics in China."
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
-
Why Splurging in Retirement is Totally Worth ItSplurging on yourself is okay when it fits your budget, as it can enhance your happiness and reward your hard work without compromising financial security.
-
5 Ways Portfolios Have Been Impacted In Trump's First Six Months in OfficePresident Trump's first six months in office have kept investors on their toes thanks to whipsaw tariff policies and a massive tax cut and spending bill.
-
AI-Powered Smart Glasses Set to Make a Bigger SplashThe Kiplinger Letter Meta leads the way with its sleek, fashionable smart glasses, but Apple reportedly plans to join the fray by late 2026. Improved AI will lure more customers.
-
Breaking China's Stranglehold on Rare Earth ElementsThe Letter China is using its near-monopoly on critical minerals to win trade concessions. Can the U.S. find alternate supplies?
-
What New Tariffs Mean for Car ShoppersThe Kiplinger Letter Car deals are growing scarcer. Meanwhile, tax credits for EVs are on the way out, but tax breaks for car loans are coming.
-
AI’s Rapid Rise Sparks New Cyber ThreatsThe Kiplinger Letter Cybersecurity professionals are racing to ward off AI threats while also using AI tools to shore up defenses.
-
Blue Collar Workers Add AI to Their ToolboxesThe Kiplinger Letter AI can’t fix a leak or install lighting, but more and more tradespeople are adopting artificial intelligence for back-office work and other tasks.
-
Will State Laws Hurt AI’s Future?The Kiplinger Letter Republicans in Congress are considering a moratorium on state AI laws. But it’s likely a growing patchwork of state AI regulations will be here for a while.
-
The Economic Impact of the US-China Trade War
The Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
-
AI Heads to WashingtonThe Kiplinger Letter There’s big opportunity for AI tools that analyze MRIs and other medical images. But also big challenges that clinicians and companies will have to overcome.
