Analysis of a “New China” and the United States role in the World:-5

The next thing that was mentioned in what we can learn from China was the savings rate.

True we have increased our savings rate from near zero or even negative to 4 percent recently mostly due to the recession but the Chinese save almost 20 percent of their income. One can argue that they don’t have the safety net of social security, Medicare and Medicaid, unemployment insurance and other governmental aid so they save that much. But to get the true picture, they have always been more frugal than the westerners. Even with our social safety net, we are still not able to save not much for rainy days relying solely on the government for our subsistence in case we fall into hard times.

We should see that all this safety net is our own money or the money the government seems to borrow to pay us in our hard times. We are dependent not on our government but on the foreign government who purchase our IOUs in order for us to survive.

Our hard earn income taxed to the max by the government in the name of unemployment insurance, Medicare, Medicaid and social security is already spent on recipients who are in the line. What we get in the unemployment insurance and other entitlements are paid for by our government IOUs to the foreign entities.

Since our savings rate is so pathetic and we tend to tax our savings too and give meager returns in earnings, people don’t find any incentive to save since they will know that their interest will be taxed at the end of the year.

The only way we can save is for the government to give incentives and encouragement to people to behave in a savings way. For example 401k is a forced savings no matter what all the experts in the world call it. But IRAs are not. But since the government encouraging savings will leave the economy in dire straits, our government will not do that anytime soon.

We really need to change our behavior regarding savings for ourselves and for our future generations so that in case of rainy day, we instead of panicking can rely on our own savings to weather the crisis.