Is America relying on overseas savers to save its skin?

Whilst the US has become more spendthrift, many developing countries have been running surpluses on which America has been relying for borrowing. Stephen Roach explains why the situation can't last.

There is no glut of global saving. Yes, global saving has risen steadily over the past several decades, but contrary to widespread belief, the rise in recent years has been no faster than the expansion of world GDP. In fact, the overall global saving rate stood at 22.8% of world GDP in 2006 basically unchanged from the 23.0% reading in 1990. At the same time, there has been an important shift in the mix of global saving away from the rich countries of the developed world toward the poor countries of the developing world. This development, rather than overall trends in global saving, is likely to remain a critical issue for the world economy and financial markets in the years ahead.

There can be no mistaking the dramatic shift in the mix of global saving in recent years. A particularly stunning change has occurred in just the past decade. According to IMF statistics, in 1996 the advanced countries of the developed world accounted for 78% of total global saving. By 2006, that share had fallen to 65%. Over the same decade, the developing world's share of global saving has risen from 22% in 1996 to 36% in 2006. Put another way, the rich countries of the developed world which made up 80% of world GDP in 1996 accounted for just 43% of the cumulative increase in global saving over the past decade.

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