[jyl]

I did not hear the NPR story, but what you described is consistent with what is well-known about China:

- China's savings rate is very high (appx 50%) while the US savings rate is zero to negative.

- The high Chinese savings rate is typical for an emerging economy. The Chinese economy is growing very fast (3-4X US growth) and China has not yet fully developed a culture of consumer spending. Japan went through a similar phase some decades ago.

- The low US savings rate is partially because US consumers have relied on growing home values to boost their personal assets, and spending >100% of their income (>100% because they've also been relying on withdrawing equity from their homes). When home values cease rising and start falling, US consumers will have to start saving money from their income, and reduce their spending, which will hurt retail sales and the economy overall.

- As precedent we can look at the UK, where the housing boom ended 1 year ago; UK consumer spending has dramatically decelerated and UK GDP growth has also fallen sharply. Denmark went through a similar thing. We are likely to experience the same thing.

- China is the major buyer of US Treasuries (done to keep their currency value low vs the US dollar). China and other foreign buyers have been the the main reason why the US has been able to finance its huge budget deficit (including the Iraq war) without tax increases or higher long-term interest rates.

- As a result, China and other foreign governments are major creditors for the US and a growing percentage of the US federal tax revenue goes to paying interest to those foreign governments. This effectively makes the US dependent on China and other foreign creditors. Thus the US has little "leverage" with China, whether on trade, North Korea, protection of intellectual property, or other issue.

I am not trying to bash China. They have >1BN people who want and need to achieve a better life and are willing to work hard and sacrifice to do it. Our problems are largely of our own making, in my opinion.