Re: China cannot drive the global economy

Americans are increasingly turning into savers.

If US households could go from saving 0% of their income to 5% within a year
it shows how consumption attitude has changed in America.

However, historically US households saving rate in 90s is only 7% and hence
it is only matter of time they start consuming again.

In the mean time US consumer spending will be weak.

US GDP is about US$14.2 trillion in which private consumption is about 72%
which is about US$10 trillion and if take away 7% savings which US consumers
are not spending that means looping off US$300 billion out of the total US
consumption numbers this year.

"Fittest" <erkova@xxxxxxxxxxxxx> wrote in message
The American consumer, not China, that can drive the world economy.

Can the world live with a frugal American consumer?

For all the criticism of Americans and their profligate spending in recent
years, it's clear that their appetite kept a lot of people in business.

BusinessWeek editor-in-chief Steve Adler moderated a panel at Davos today
on the subject of how the world will cope with a new frugality among U.S.

The impact of the sharp drop in spending has proven devastating to
manufacturers. Adler noted that Americans have accounted for nearly a
quarter of global consumption in recent years, about three times the level
of spending by consumers in China and India combined.

Now, the U.S. consumer engine is slowing at a record pace.

The most dire assessment came from Ian Davis, Worldwide Managing Director
of McKinsey & Company (U.K.). He noted that "Americans have no option but
to be more frugal over the next 10 to 20 years." Along with being cut off
from credit, the population is aging and "older consumers don't buy as

Zhu Min, Group Executive Vice-President of the Bank of China, predicted
that it will take many years for Chinese consumers to make up for the gap
created by falling U.S. spending.

The Chinese currently spend about $1.5 trillion, vs. the $10 trillion
normally spent by Americans. Even with 21% annual growth in spending in
China, that won't be enough to make up for what Zhu projects to be "a
sharp drop in American consumption for three years."

The question is how long Americans will stick to their tighter ways. Will
frugality become the "new normal" among Americans, as some people fear?

Richard Haythornthwaite, Chairman of Mastercard Worldwide (U.K.) didn't
appear convinced. While the dollar value of sales has dropped sharply, the
actual number of transactions has held up surprisingly well. He concluded
that "Americans are shopping smarter."

Ken Rosen, Professor Emeritus at the University of California, Berkeley,
insisted that the spirit of frugality will last. "We spent money we didn't
have on goods we didn't need," he said. Now, American consumers can't
refinance their homes or get access to credit-and the situation will only
get worse as layoffs escalate. "I'm still worried that the housing market
has not stabilized," he added. "The team we had in place over the last
eight years dropped the ball . The free-market fundamentalism we had was a

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