0.20 General introduction to savings mobilization  (Page 2/9)

These figures include not only domestic private savings, government savings (or dissavings) since most societies have been running deficits (U.S., Japan, virtually all of Europe) the savings rates in Table 20-1 includes all government sector deficits . Now, a large portion of government deficits does represent dissaving . (% GDP U.S. deficit 2008 – 7% U.S. deficit 2009 – 10% GDP 2012 – 13%)?

But not all the somewhat good news: to the extent that a government deficit is incurred to finance capital formation we worry less about low natural savings rates. Why is that?

But consider the>$1 trillion + deficits expected for U.S. for next few years.

Perhaps $100 billion year may reflect $ spent on roads, harbors, education, community, research, etc. These are all investment items. That is the good news, but the good news is unfortunately swamped by the bad news. Dramatic drops in national savings rates and rising government deficits bode ill for welfare of future generations.

LCDs

By way of contrast: savings rates in the fastest growing poor nations have been very high, and have drastically increased in India and China since 1980s.

Net Savings = Gross Savings – Depreciation

India – 23%
China – 40%

It is apparent that different countries display different degrees of reliance on private savings mobilization efforts. And some countries rely more heavily on certain forms of private savings then do others.

Net savings in developed nations are indicator of savings available for both domestic and foreign uses.

We have noted the behavior of total net savings in rich countries over the past 20 years.

1964 net savings almost 11% GDP, rose to 14.1% by 1973. Fell sharply after 1973. Why? First oil crisis. Rose again by 1979 to almost 11.0%, fell again to 8.8% in 1981. Why? 2 ^nd oil shock – In U.S., net household S reportedly approached zero.

Net savings in U.S. = 1.2% of GDP

Government Savings – before 1973, government savings were about 20% of total net savings in developed countries.

Since 1973 government savings has been negligible. It has even been negative in some years, except in the outlier, Japan.

Elements of private savings

First- Corporate Savings (retained earnings). Definition: after tax profits minus dividend payouts. Before 1973, corporate savings tended to be about 25-30% total savings.

Industrial Nations- since 1973, corporate savings rates have been highly erratic. Almost nothing in some years, about 20% in total savings in other years.

Household savings

Since 1973, household savings has been by far the chief source of savings in rich countries – except U.S.

Government and corporations dissaved in 1975. Since 1975, household savings has accounted for more than 70% of total savings in rich countries.

What about emerging nations ? Examine the most recent year for which data available. Examine gross savings (figures on net savings are not reliable for poor nations).

Look only at domestic savings for now. We examine foreign savings later.

In low income emerging nations e.g. India, Pakistan, private sector savings, household and corporate savings were over 80% of total savings. Government savings in emerging nations usually negative and never more than 5-6% total savings,