"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."
Sign up for Kiplinger’s Free E-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.
-
Take Charge of Retirement Spending With This Simple StrategyTo make sure you're in control of retirement spending, rather than the other way around, allocate funds to just three purposes: income, protection and legacy.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
Europe Faces Economic and Political Headwinds Next YearThe Letter Challenges for Europe: Potential tariffs, high energy prices and more competition from China will weigh on the bloc in 2025.
-
Don't Sleep on Japan's Economic TransformationThe Letter After almost three lost decades, Japan — one of the world's biggest economies — is finally showing signs of life.
-
Kiplinger Outlook: Telecom Companies Brace for Tough TimesThe Letter The telecom industry is entering a new era that threatens profitability. But the coming Trump administration will make it easier for the major players to adjust.
-
Start-ups Trying to (Profitably) Solve the World’s Hardest ProblemsThe Letter More investors are interested in companies working on breakthrough science to tackle huge societal challenges. The field of deep tech has major tailwinds, too.
-
The Big Questions for AR’s FutureThe Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
-
China's Economy Faces Darkening OutlookThe Letter What the slowdown in China means for U.S. businesses.
-
AI Start-ups Keep Scoring Huge SumsThe Kiplinger Letter Investors continue to make bigger bets on artificial intelligence start-ups, even for small teams with no revenue. Some backers think a startling tech breakthrough is near.
-
Should We Worry About the Slowing U.S. EconomyThe Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
