Saving vs. spending (#88; Topic M)

Number 8 is a lucky number in China, because it is a homoym to a Chinese character meaing making a fortune. Double 8, of course, is doubly fortunate. (One of our best friends, a multi-millionnaire, has 8888 as her car's license plate.) So, let us use this occasion to write an entry on money matters. Today was the second day of new Federal Reserve chairman's, Ben Bernanke's, debut appearance at a congressional hearing (today, before a Senate committee). He was asked a variety of questions, some rather penetrating, and several relating to China's substantial holding of US debt instruments. One senator cited an incident several years ago: when a South Korean central banker said that his government planned to unload some US bonds, Wall Street reacted with a drop of over 150 points! What would happen when China, which has a much larger holding of US bonds, harbors similar plans? Bernanke, of course, had no answer. (Regardless, Wall Street liked Bernanke's demeanor; the market was up by 60+ points today.) Another senator expressed the hope that US citizens could improve their savings rate (which, at the moment, is negative) so that they, and not foreigners, would finance the US government's deficits. A good try. This reminds me of a story. Last year, Treasury Secretary Snow visited China; in all his talks, he encouraged -- advised might be a better word -- the audience, Chinese citizens all, to save less and spend more. Later, a US delegation representing credit-card issuers visited China. They wanted Chinese citizens not only to spend more, but pay less -- credit-card issuers were not making much money when most Chinese credit-card holders, after charging against their credit cards, elected to pay the entire balance off every month, thereby depriving these issuers the chance of earning interest. One wonders: Who would finance USA's deficits when Chinese citizens, following their counterparts in USA, indulge in negative savings and max out their credit cards?
Posted at 11:55 pm, Thursday, February 16, 2006