One of the reasons the U.S. consumes so much is that the excessive savings of countries like China and petrodollars from oil producing nations are recycled to the U.S. in the form of purchases of dollar-denominated assets, like U.S. Treasury securities. This massive surge of savings to the U.S. allows us to maintain low interest rates and fuels spending -- and to an increasing degree, on products manufactured in places like China.
What is the U.S. Buying? Well, everything. But the topical items include homes and imports.
Homes are important in the current context because cheap mortgage credit helped lead to the excesses in mortgage lending that played a critical role in the financial crisis. Imports are important because of the political concerns of Democrats and their usual antipathy to trade.
What's to be done?
The solution, if one is needed, is not "new". To rebalance the global economy excessive savers must be induced to spend more; excessive spenders must be induced to save more. If you don't want to read academic studies, check out the excellent writing by the Financial Times' Martin Wolf in recent years. You can also review the numerous U.S. Treasury Department's currency reports and G7 finance ministers' statements over the years.
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Getting the Chinese (and others) to save less is a long-term problem that will only occur over time and will not occur orderly. While the Chinese are consuming more, they save excessively because of very weak social safety nets that requires savings for proper health care and retirement, and almost non-existent consumer credit, requiring cash for the purchase of homes, autos and other goods.
Establishing a social safety net in China, and building a mature consumer credit system will take years if not decades. China recognizes the need to make these adjustments in its economy -- for its own good -- but can't move quickly enough to satisfy the global-imbalance lobby.
Complicating matters, China also manages its currency, only allowing for fractional movements against the U.S. dollar. In order to keep its currency from appreciating too rapidly, China mops up inflows of U.S. dollars and invests them in U.S. treasury securities and other dollar-denominated assets, further contributing to the cycle of low interest rates in the U.S.
This, too, is a thoroughly analyzed concern that has vexed U.S. and other economic policymakers for years. The U.S. and G7 nations have encouraged greater currency flexibility in China for years, but the Chinese are not interested in a currency quick fix. China will adjust, but only over a timespan they view as appropriate, and U.S. foot-stomping has only had limited effect in moving them along the path.
The U.S. has itself adjusted recently, but only in the most disorderly of ways - by having a long, deep recession and by massive household and business delevering that has, temporarily at least, lifted the nation's savings rate.
If the U.S. increase in savings proves durable, that could assist in global rebalancing, but it also has the consequence of lowering economic growth potential in the future. The evaporation of credit availability is certainly one way to encourage savings, but few would argue that it's the best way. The U.S. needs to find it's own balance, internally, that meets the needs of U.S. consumers.
The G20 this weekcan be expected to give new rhetoric to old initiatives encouraging global economic rebalancing, but in the end nations will do what's in their own national interests, and only over time.
Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration.