One of the problems encountered by many US citizens is that due to easy availability of credit, people borrow significantly. US spending habits indicate that US consumers have one of the lowest saving rates in the world.
Saving rates are considered to be a percentage of income that consumers save. The Bureau of Economic Analysis issues the personal savings rate every year. The rate is computed by subtracting all expenses that an individual incurs, from disposable income, which is personal income minus taxes and other fees to government agencies. The sum is treated as savings. The personal savings rate at times falls to a negative 0.8%. A low savings rate only gives rise to wider gaps in the trade deficit, leading to a weak economic recovery.
The US current account deficit reflects inadequate domestic savings. Reduction of this deficit requires that US savings rise or that demand in the rest of the world increases. A fall in the dollar would be a by-product of this adjustment.
The US has a large current account deficit for more than a decade. The trade deficit with just one country, China was as much as $162 billion in 2004. The dominant role of the US in the global economy has been accompanied by its huge current account deficit, presently exceeding 6% of its Gross Domestic Product (GDP). The large current account deficit of the US is a cause for concern, notwithstanding the fact that the US dollar is the favorite currency of the world.
A high domestic savings rate allows a country to achieve a highest investment rate without having to incur foreign debt. The IMF has estimated that world savings as a percentage of world GDP stood at 25.4% in 2005, which translates into US$11.8 trillion, almost the size of the US economy.
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