"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."
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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.
-
Snowbirds: Avoid These 3 Sneaky Insurance IssuesBefore snowbirds depart for their winter retreat, they should check their insurance coverage for surprises that might arise, or else be on the hook for repairs.
-
Hang in There With This Value FundPatience is required for investors in the Dodge & Cox Stock Fund, but its long-term outperformance proves it's worth the wait.
-
Amid Mounting Uncertainty: Five Forecasts About AIThe Kiplinger Letter With the risk of overspending on AI data centers hotly debated, here are some forecasts about AI that we can make with some confidence.
-
Worried About an AI Bubble? Here’s What You Need to KnowThe Kiplinger Letter Though AI is a transformative technology, it’s worth paying attention to the rising economic and financial risks. Here’s some guidance to navigate AI’s future.
-
Will AI Videos Disrupt Social Media?The Kiplinger Letter With the introduction of OpenAI’s new AI social media app, Sora, the internet is about to be flooded with startling AI-generated videos.
-
What Services Are Open During the Government Shutdown?The Kiplinger Letter As the shutdown drags on, many basic federal services will increasingly be affected.
-
The Economy on a Knife's EdgeThe Letter GDP is growing, but employers have all but stopped hiring as they watch how the trade war plays out.
-
Apple Readies for AI Upgrade with New iPhonesThe Kiplinger Letter The tech giant has stumbled when it comes to artificial intelligence, but a new batch of iPhones will help it make headway.
-
Japan Enters a New Era of Risk and ReformThe Kiplinger Letter Japan has entered a pivotal moment in its economic history, undertaking ambitious policy and structural reforms to escape from decades of stagnation.
-
How Consumers Are Tinkering with Cutting-Edge AIThe Kiplinger Letter Companies launching artificial intelligence tools are jostling for consumer attention. Some products are already building a deep connection with users.
