Steve Roach, who was exiled to Hong Kong by his employer for being too (correctly) bearish still pops up from time to time with some cogent observations.

NEW HAVEN – The United States has a classic multilateral trade imbalance. While it runs a large trade deficit with China, it also runs deficits with 87 other countries. A multilateral deficit cannot be fixed by putting pressure on one of its bilateral components. But try telling that to America’s growing chorus of China bashers.

America’s massive trade deficit is a direct consequence of an unprecedented shortfall of domestic saving. The broadest and most meaningful measure of a country’s saving capacity is what economists call the “net national saving rate” – the combined saving of individuals, businesses, and the government. It is measured in “net” terms to strip out the depreciation associated with aging or obsolescent capacity. It provides a measure of the saving that is available to fund expansion of a country’s capital stock, and thus to sustain its economic growth.

In the US, there simply is no net saving any more. Since the fourth quarter of 2008, America’s net national saving rate has been negative – in sharp contrast to the 6.4%-of-GDP averaged over the last three decades of the twentieth century. Never before in modern history has the world’s leading economic power experienced a saving shortfall of such epic proportions.

As I’ve said many times before, we’ll know we’re back to the possibility of a stable and growing economy when this national savings rate begins to make up the years of shortfall.

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  • marc  On November 1, 2011 at 1:58 pm

    Exactly right. It is no coincidence the net saving rate and the long run growth in S&P500 is the same figure.
    So now one cannot extrapolate from the past and it is perfectly possible stocks will be the same level they are now (inflation adjusted of course) 20 years from now.

    If you want to make money then absolute return stratagies (ie long/short) are the way to go.
    Appreciate your blog enormously

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