save too much but whether we are saving too little. the level of income that will sustain us in the future depends critically upon how much as a nation we set aside today. in other words, what is happening to the national saving rate - the proportion of the net national product that is not consumed by either the private or public sector? since the late 1960s the national saving rate has been declining fairly steadily, from over 10 % to around 5 %. although saving rates elsewhere in the g7 have also fallen, they were higher than in the uk for most of the post - war period. recently the gap between saving rates in the uk and the rest of the g7 has narrowed considerably, not as a result of higher saving in the uk but lower saving elsewhere. in large part this reflects changes in fiscal policy. there is ample empirical evidence that higher government borrowing lowers national saving. and for twenty years or more the g7, while lecturing each other and the rest of the world on the need for fiscal discipline, has continued to borrow more and more. the ratio of net public debt to gdp in the g7 has more doubled since 1980 from around 25 % to around 60 %. the uk is the only member of the g7 in which the ratio is lower than in 1980. the uk has a clear framework for fiscal policy. although rules and frameworks cannot guarantee that governments will pursue sustainable fiscal policies, as the large deficits in the early 1990s illustrated, they make deviations from medium - term sustainability more transparent. but in the rest of the g7 the absence of a clear framework, as in japan and the united states, or the lack of credibility in the stated framework, as in the failure to enforce the stability and growth pact in the euro area, has made it easier to let the fiscal position slip. as a result, the g7 fiscal deficit is now close to its 25 - year peak, and the average national saving ratio has halved. at home, the government ’ s fiscal rules constrain the path of fiscal deficits. they limit borrowing, over the economic cycle, to the level of public investment and place an upper limit on the debt to gdp ratio of 40 %. in assessing the fiscal position it is important to look forward and not just backward at the realised deficits over the past cycle. of course, it is also important to recognise the many uncertainties surrounding the future path of the public finances. central bankers probably talk too much about fiscal policy

some lower - rated companies found access to the capital markets increasingly difficult, and as banks tightened credit standards, liquidity fears for some borrowers intensified. these factors, together with a sharp downturn in business optimism and mixed economic data, added to growing fears of a recession this year. such a climate of uncertainty calls for clear signals from the authorities and over the past two months the fed has responded in a decisive fashion. the adjustment in the policy bias and recent cut in rates have increased the probability of a soft landing and will, from an international perspective, reduce the risk of a sharp reversal of capital flows into us markets. the combination of a slower growing - but still expanding - us economy and a weaker dollar should provide a more sustainable pattern of current accounts and capital flows, reducing the risk of instability in financial markets in both the us and abroad. the direction of some of the trends we have seen in the last few weeks is not unwelcome, in particular the stronger euro and weaker dollar, and the reduction in oil prices ; and a soft landing looks more likely as a result. but the speed of the adjustment remains a cause for concern. it is important that the irrational exuberance that marked the run - up in equity prices to their peak last year should not give way to irrational despondency. the view among central bank governors meeting recently in basel was that while the next few months may be difficult, for the year as a whole the us economy will continue to grow, by perhaps 2 - 3 %, and the overall world economy - helped by steady growth in the euro area would grow again this year above its long - term average. no doubt this is a slowdown compared to recent rates of growth and a downward revision of earlier expectations of growth for the year, but it is not a downturn in the sense of contracting activity. a soft landing in the us with the associated benefits for the global economy still therefore seems to me the most likely outcome. implications for the uk turning to the uk, the need to avoid irrational despondency is even more apparent. while a slowdown in the us will have some impact on the uk, the direct trade affect will be relatively small. the uk is more dependent on growth prospects in the euro area, which is the market for more than two thirds of uk exports. if there is an impact, it is more likely to come via some other effect such as financial contagion or financial constraints on the uk affiliates of