The Golden Age Is Ending
The "golden age" has therefore resulted in an immense rise in foreign ownership of all American securities. Foreigners own more than half the federal debt, about a third of corporate bonds, and 13 percent of the U.S. stock market. This represents an accumulating claim on the future output of the United States and foretells an increasing flow of dividends and interest payments abroad.
It doesn't help that Americans save so little. Personal saving rates over the past 15 years have gone down from 7 ½ percent to zero. The aggregate national saving rate, which includes the public sector and private corporations, has dropped from 13 percent in the 1960s to 0.8 percent last year. The average American with an income of about $40,000 saves virtually nothing, while the average Chinese, earning somewhat above $2,000 a year, puts away about 20 percent of his income. Compound a low savings rate with a trade gap that has nearly doubled to 7 percent of gross domestic product over 20 years, and we can understand why the net international investment position of the United States has declined from what was a modest plus-5 percent of GDP in the mid-1980s to its current minus-20 percent.
In short, we are no longer as dominant in the world's economy as we were. Everybody's lives will be affected by that. That includes both national and individual rates of growth, as well as inflation and interest rates. The trend of gradual disinflation here and around the world that we have enjoyed for the past 25 years under the pressure of price competition from imports is drawing to an end. We are now looking at a period of rising inflation driven in good part by the economic successes around the world.