Galloping Consumption: Chinese Savings Glut Part II

Commodity News Center ^ | 9/2/09 | Adrian Ash

[h20skier66]

CHINA IS A FARAWAY COUNTRY of which we know little. The Isle of Wight, on the other hand, is a small island two miles off England's south coast where my mother-in-law lives.

And there...between the crumbling fiber-glass dinosaurs of Black Gang Chine and the rain-soaked falconry shows at Robin Hill...chit-chat says England's baby boomers gave up saving long ago.

"Spend! Spend! Spend!" remained their grim cry this Bank Holiday weekend, despite the death of cheap credit, liars loans and self-cert improvement mortgages. Margaret Thatcher screwed their parents' state pensions; now they're getting screwed by her answer. Company schemes are falling short, the FTSE hasn't budged in 12 years, and annuity rates are so low, you need a lump sum of £300,000 - some half-a-million dollars - to retire in poverty.

Whereas in China...? While those "rich" Westerners spend, China's one-billion souls save, putting aside a massive 20% of gross domestic product since 1998. That ratio rose to 24% in 2008, according to Louis Kuijs at the World Bank in Beijing.

Yes, the personal savings rate varies from city to farm, reaching perhaps 50% in central Beijing. High-income families save proportionately more as well, says Kuijs. "Rich people save a lot more and their numbers have increased," he told The Economist recently. But in aggregate - which is all Mr.Market cares about - the world's most populous and fastest-growing economy likes to save for the future.

[I Buried My Guns]

But what happens when their saved US dollars plummet in value?

Over here, it would be "the masses with pitchforks in the streets" time. Will it be "chopsticks in the streets" for them, and and maybe they'll destabilize their gov't? I certainly can hope!

I read awhile back that most of the US $100 bills in circulation are not even in America, but rather inside the mattresses of folks all around the world who see our currency as stable and safe compared to their native currency. I think they are in for a rude surprise in the coming months as the value plummets, and they realize the their (for example) Mongolian Tugrug wasn't so bad, after all.