Most economists believe that a country’s savings are most important for it to grow economically, as it essentially funds new investment in a country. However, in the United States, most households have an income saving of about 0.9% only, and economists thought that this would result in high long-term interest rates and housing rates. But this was not the case, and the economy continued to grow. For this reason, experts were forced to consider the impact of the global economy and the fact that all over the world, savings are abundant, with IMF placing the amount at about $11 trillion. In 2004, the economy was seen to be growing at a rate of 5.1%, with growth in the housing sector and low-interest rates, which has encouraged American spending on health care and infrastructure. However, the global excess savings phenomenon has its share of drawbacks too. For on, the investors now have to be much more aware of the global economy, as the economic decisions taken by China or European countries have a direct impact on American economics. Even the key executives at the federal reserve bank of America have conceded that they are not sure about the state of the economy, saying that it is rather unpredictable. Many fear that if investors get restless and lose confidence, it can cause the liquidity to disappear from the markets and can affect the growth in the housing sector as well, which is expanding in almost all parts of the world. Some also question how long this trend of global savings will continue, and experts predict that it may continue for some years. Already, the wealth of the world is being transferred to the biggest oil-producing countries, such as Russia, Saudi Arabia, and the United Arab Emirates, that are also unwilling to accept outside help in tapping their unknown oil resources. However, most money being earned is not being spent, as seen by the example of Japanese companies that are earning billions of profits but not investing any at home or oil-producing countries that are also profiting greatly from the worldwide surge of oil prices. As the population of Japan and European countries age rapidly, the companies at home are afraid to spend their money on investments to expand their operations. This explains why the trade surplus of Japan and Germany, the latter being where unemployment is rampant, is very high. Nevertheless, China should be considered separately, as for many years, economists thought that China’s large trade surplus was well balanced, especially with reference to the United States. China has a trade surplus of $70 billion, of which it is not spending much at home. Instead, these saving are transferred into US Treasury bonds and an investment in American companies. Specialists say that this could be a step towards Chinese takeovers of American companies. Although China has agreed to encourage spending, it has kept the prices of imports high and the value of its currency, yuan, artificially low.
The global rise in cheap money has increased productivity and encouraged growth, as companies are being bought and being remolded into more profitable corporations. Many investors are also looking forward to investing in alternate fuel technologies, keeping the surge in oil prices. Nonetheless, the economists are worried that most of the global savings are going into the United States that has a huge trade deficit budget that can lead to foreign investors taking their money out of the US markets, causing the value of the dollar to plummet and interest rates to rise. What is of concern as well is that most of the borrowing by the United States is used to pay for the federal budget deficit and for housing funds. As the value of property soars, it becomes much harder for first-time buyers that are the lifeblood of the housing sector to purchase homes. Many predict this will create serious problems in the future. The United Kingdom is facing an entirely opposite situation. Seeing this, policymakers are finding it hard to frame an effective policy that does not harm the markets by causing the investors to lose confidence. So, low-interest rates may be contributing to immense economic growth, but the future does not appear so positive.