[A-List] A global savings glut?

[Jurriaan Bendien]

Henry Liu argued for a dollar glut, and I suggested both a dollar glut (Liu) 
and a savings glut (Bernanke). The Bank for International Settlements 
reports an interesting table which may shed some light on this: 
http://www.bis.org/publ/arpdf/ar2005e2.pdf (global saving and investment 
trends, as a percentage of GDP, page 24)).

Taking the 2004 figures from this table:

World: saving  24.9% and investment 24.6 % discrepancy -0.2% points
USA: saving 13.7% and investment 19.7  % discrepancy +6% points
Euro area: saving 20.9% and investment 20.2% discrepancy -0.7% points
Japan: saving  27.6% and investment 23.9% discrepancy - 3.7% points
China: saving  48% and investment  43.9% discrepancy -4.1% points
Latin America: saving 21% and investment 19.8 % discrepancy -1.2% points
Central and Eastern Europe: saving 19.1% and investment 19.8% discrepancy 
+0.7% points

As you can see, in most cases except the USA, Eastern Europe (and some Asian 
tigers not considered yet here) investment levels are below the savings 
level, this is really Bernanke's "savings glut" which tends to be attributed 
to the lack of a "climate of business and consumer confidence". Of course, 
if they get very aggressive towards Iran, this climate will get even worse.

The "cumulative change in percentage points", taken from the same table, for 
1991-2004 (I assume this means the annual average across that interval of 
time?):

World: saving  +1.7% and investment   +0.1 %
USA: saving -2.5% and investment 1.1 %
Euro area: saving -1.1% and investment  -2.9%
Japan: saving  -6.8% and investment  -9.0%

The USA is really the odd man out here, having imported a lot of foreign 
investment capital.

Now, I do not know exactly what they include in saving and investment, but I 
assume they use the standard national accounting categories - investment, 
they say, includes both "residential and business capital formation" which 
refers really to total gross fixed capital formation, i.e. net new additions 
to fixed assets, unadjusted for depreciation. Obviously "gfcf" does not 
equal total investment, because it excludes investment in financial assets 
(and intermediate goods and services, land purchases and most traded 
second-hand assets). But financial assets is precisely where a lot of the 
apparently "non-invested" savings have gone - bonds, securities, 
derivatives, hedges and the like.

If we were to exclude investment in residential real estate from total 
investment, the discrepancy between saving and fixed investment becomes much 
more dramatic (I do not have this data on hand just now). Basically, fixed 
investment in production has stagnated, or even declined, in real terms. GDP 
also includes the imputed rental value of owner-occupied housing, and again, 
if we take that out, the trend is more sharply visible. As I have previously 
argued, because more people now own homes with a mortgage, which appreciate 
in value, rather than rent housing (in OECD countries), this boosts GDP 
totals and therefore also official economic growth totals.

If we disaggregated savings and their disposition according to income 
groups, we'd probably find that the poor don't save because they do not earn 
sufficient money, and the rich do not use their additional savings for new 
investment in productive physical assets (excess capacity in relation to 
final consumer demand) but invest more in financial assets instead. The 
middle classes also do not invest much of their savings because of 
uncertainty about the future. Out of this, we get ideologies such as that 
there is a lack of entrepreneurship, a lack of risk taking and so on.

So anyway, in reply to Henry, my hunch is that there's both a dollar glut 
(unusable currency reserves of governments - BIS claims an additional $535 
billion in Asian reserves during 2004, raising total Asian reserves to $2.4 
trillion) and a savings glut - a savings glut in the sense of a lot of 
capital seeking acceptable, low-risk yields outside the sphere of 
production. Or, in Marx's phrase, "the ultimate barrier for capital is 
capital itself". The result is a sluggish, rather conservative world 
economy, lacking much dynamism overall, except in a few sectors such as 
minerals, financial speculation, computers etc. It's not that there is a 
capital shortage, rather capital is globally superabundant - but globally, 
under conditions of extreme income disparities and volatility, the 
additional capital created is not invested very much in expanding productive 
capacity. The capital "shortage" exists perhaps only from the point of view 
of those who seek long-term capital to invest in expanding production, 
including governments concerned about job-creation.

In other respects, it seems to be a "live now, pay later" kind of world 
based on relatively easy credit - to the extent that not just the historical 
trend in fixed investment, but also in savings is down. To balance out the 
picture though, really we need data on the trends in final consumer 
demand...

Jurriaan