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July 17, 2005
The risk of rising U.S. debt
Awhile back, this post made the point that, rather than focusing on CNOOC's bid to overpay for a second tier U.S. oil & gas company such as Unocal, the real issue that needs to be addressed is that American society is currently impoverishing future generations of Americans by accumulating more debt.
Picking up on that issue, James D. Hamilton provides this insightful analysis that explains why the issue is not the amount of debt that foreigners hold, but the low U.S. saving rate. As noted earlier, the effect of Unocal's bid on Chevron and Unocal is a much narrower issue.
Posted by Tom at July 17, 2005 07:36 AM
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Comments
The "low" US savings rate always looks a lot better when the methodology figures in home ownership and 401ks. Those are two of the biggest investments for most people, yet two that are not always included in such measurements.
Posted by: kevin whited at July 17, 2005 08:06 AM
Sorry to disagree with you twice in two days on the same blog, Kevin, but home ownership really shouldn't count as savings in the macro sense. People look at homes and 401Ks as commitments they make that help insure a successful retirement, but to get the home they go in to the market as borrowers. Most of us borrow money that someone else has saved, and then we pay them interest on it.
That borrowing is certainly justified, because people deserve to live in the houses that they want and can afford, but it means that the capital they borrow isn't available for research or infrastructure investment (except the infrastructure to maintain the home).
With 401Ks, depending on the mix of your portfolio, most of that money isn't being lent to anyone, so it doesn't constitute a saving either.
Posted by: Adam Block at July 17, 2005 09:15 AM
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