U.S. Savings Down, Foreign Deficit Up

U.S. domestic savings are now in a negative realm, after a spike due to government aid, followed by a 60% erosion of that buffer in August, as citizens spent the money. Economist Steven Roach, writing the Financial Times, predicts a collapse of the dollar as a result of plunging domestic savings and a rising trade deficit. The collapse of domestic savings has resulted in an increased current account deficit, as the government has sought financing abroad. If there is no recovery, at some point foreign creditors might demand “concessions” for their help, and this takes two forms: either a higher interest rate or currency adjustment.