Global Savings Glut



In 2005, former US Federal Reserve chairman Ben Bernanke mentioned the “global savings glut” hypothesis, a global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging market economies and oil producers such as Saudi Arabia, as a major reason for low global interest rates. It also explains the increased demand for bonds and subdued borrowing costs. This in turn hurts the savers as the return on their savings reduces over time.Piggy-Bank Planet

Most Asian economies have been models of prudence. While American and European households are borrowing up to the hilt, Asian ones are tucking away their savings.

Asia is likely to be home to more than half of the total global middle class population by 2020. According to HSBC, emerging economies will add 330 million more “peak savers” by 2030.

The richest 5 percent of China’s households save about 70 percent of their incomes and account for half of household savings. The South Asian countries have one of the highest saving rates in the world at around 30 per cent.

Anglo-Saxon countries—America, Canada, Britain, Australia and New Zealand—have the lowest rates of household saving. Americans on average, save less than 1% of their after-tax income today compared with 7% at the beginning of the 1990s. The average retirement account balance for Americans between 55 and 64 is $291,000, which will only provide about $12,000 a year in inflation-indexed income.

In Australia and New Zealand personal saving rates are negative as people borrow to consume more than they earn.

In Europe, the record has been mixed. Some countries, such as Germany, resemble Japan, with rising saving surpluses and weak domestic demand. Others look more like America.

People have many reasons to save: as a precaution against a sudden drop in income; to smooth their consumption over their lifetime; to provide first class education to their children or to leave assets to their children.

But savers are earning poorer returns than necessary from their bank deposits, with established customers in particular losing out. As the fear of deflation and negative interest on deposits held in banks spreads globally, households across Asia have to rethink their strategy for saving.

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