Americans saving more: too bad

At the Wall Street Pit, Donald Marron says that Americans are saving more to the point that the US government has borrowed less from foreign investors:

Individual Americans started saving again, reducing our nation’s borrowing needs [He means from foreign sources, PWD] by $455 billion at an annual rate. And private investment plummeted, reducing borrowing needs by another $458 billion. Together, those two changes largely explain how U.S. borrowing from the rest of the world could fall by $400 billion over the past year, despite booming government deficits.

In the long run, the increase in personal saving will be a welcome development, as Americans rebuild their wealth and help finance government deficits (in the short run lower consumer spending may weaken the recovery). The decline in private investment is more troubling. In the short run, some of that decline is healthy as we work through excess inventories of products, houses, and some types of commercial real estate. In the long run, however, we will need growing investment to boost the nation’s productive capacity.

Well, first of all, foreigners are catching on to how buying US debt is a major trap, so the Chinese and the Indians, e.g., are investing in such things as gold and Canadian oil companies.  But second, while it is good for Americans to reduce debt and to save, it is folly for them to put it in fixed income assets, especially government debt, when inflation is nigh.  When that hits, those who are holding government treasury bills or bonds will be holding worthless paper:

… those who had supported the government during the war by buying State bonds had lost heavily by the depreciation of the mark, and the whole population were now engaged in evading taxation and devoting their money to speculative purchases, … [British Consul-General in Munich, Mr. William Seeds, cited in Adam Fergusson, When Money Dies:  The Nightmare of the Weimar Collapse (1975), p. 70.

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