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The sliding savings rate: an economic issue for the 1990s.


With President Bush, Congress and many economists recognizing a declining savings rate as a chronic economic problem, there is likely to be much discussion of the issue in the months ahead.

However, according to James E. Annable, senior vice-president and chief economist for the First National Bank of Chicago, there may be little effective action. Annable, former head of the congressional budget office, summarized the problem in the following fashion at the Financial Executives Institute's treasurers conference.

Annable noted the biggest swing factor, by far, was the rise in the federal deficit to an average of 3.9% of gross national product. With domestic investment exceeding net savings, the economy must import savings equal, on average, to 2.3% of the GNP. "Essentially," says Annable, "that's all the savings the world creates each year."

Annable believes there are only four ways to resolve the problem. The first, raising the personal saving rate, will be relatively ineffective in his opinion, because households are unwilling to cut consumption. The second, cutting the federal deficit, he views as unrealistic. The third, a structural recession to reduce consumption, is politically unfeasible. That leaves as the only apparent strategy the fourth way--a depreciation of the dollar, which tends to decrease imports and increase exports. Thus, he looks for monetary policy to aim at a gradual lowering of the dollar. However, the Fed must strive for moderate easing that would not be designed to attract additional foreign capital to the U.S.


(as a percentage of

gross national product)
Economic Average Average
factor 1950-79 1980-89
Personal savings 5.0% 3.0%
Retained profits 3.0 1.8
Federal deficit -0.7 -3.9

State and local
 surplus 0.3 1.3
Net savings 7.6 2.2

Net private

 investment 7.2 4.5
Savings exported 0.4 -2.3
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Publication:Journal of Accountancy
Date:Apr 1, 1990
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