of clearly - defined and fully monetized cost structure hampered the adjustment of savings ratio. it is therefore important to expedite the reform of the public sector and the transformation of the government functions. v. observations on low household saving ratio in the u. s. the u. s. household savings ratio in recent years went through two phases : before the mid1990s, it ranged between 7 - 10 % ; after 1997, it declined remarkably with pronounced “ twin deficits ”, especially trade deficit. some attributed the low savings to the so - called “ euphoria ” on the u. s. economic performance since the mid - 1990s. specifically, in late 1980s and early 1990s, after the collapse of the central planning system of the former soviet union and eastern europe, growth in those regions steadily slipped. in the 1990s, the japanese economy was also trapped in prolonged stagnation, and eu ’ s economic performance was lackluster due to structural problems including rigid labor market. the u. s., as the largest economy, boasted the optimal economic system that was seemingly unparalleled in the world. the only remaining challenge, in terms of economic system, came from asia ; after 1997, the asian economies suffered heavy blows. in contrast, the us economy demonstrated strong flexibility and resilience, and recovered rapidly from the 9 / 11 attack and the burst of it bubble in recent years. all these augmented the euphoria sentiment in the market, which in turn influenced the saving behavior of the u. s. residents. however, the unprecedented magnitude of the current financial crisis is expected to dramatically dampen such euphoria sentiments. the time series show that this round of low savings and high consumption in the us commenced in mid - 1990s. in contrast, the savings ratio of east asian countries only surged after the asian financial crisis and china's savings ratios did not begin to increase until 2002. the difference in time distribution indicates that there is no significant causal relationship between the two. vi. options for adjusting saving ratio global savings imbalance exists for many reasons. it seems inappropriate to link savings ratio only to exchange rate, and it is also unrealistic to resolve long - term issues in the short run. one should, instead, adopt a broader and more comprehensive mindset in examining the imbalance of savings. first, a comprehensive set of prescription is needed. although the u. s. can ’ t sustain the growth pattern of high consumption and low savings

national wealth as the east asian countries but lower savings ratios. this can be attributed to the cultural differences in the region, where people have a higher propensity of consumption and tend to quickly use up all their salaries. third, family tie is strong in the east asian countries, and families shoulder social responsibilities such as providing for the elderly and bringing up children. fourth, according to the life cycle hypothesis by franco modigliani, more money is saved to meet future pension and healthcare needs as the share of working age population increases. when we study the phases of economic growth, in times of exceptionally high economic growth, most of the incremental income will be saved, resulting in an unusually high savings ratio. china fits in the above - mentioned two conditions for a high savings ratio. japan and the u. s. can also demonstrate the contribution of these factors in determining savings ratio. similar to the u. s., japan is a developed country with high per capita income. the social security systems in the two countries have their respective weaknesses. however, japan ’ s savings ratio is much higher than that in the u. s. this can be largely ascribed to cultural, family value and demographic feature in japan, which are fairly similar to those in other east asian countries. some argue that an inadequate social security system leads to high savings ratio. though logically sound, this argument lacks adequate empirical support. moreover, it is based on the assumption that human behaviors are rational and people increase their savings for future healthcare and pension needs. in fact, such an assumption does not necessarily stand. high savings ratio in oil - producing countries has different reasons. endowed with rich oil resources that far exceed their normal demand, these countries naturally accumulate their wealth in the form of savings. the elementary textbooks on economics always start with “ supply, demand and prices ”, which lead the readers to believe that certain prices ( e. g., exchange rate and interest rate ) can determine the behavior of savings and consumption. however, the fact is that the level of savings ratio is influenced by a wide range of factors, and it can ’ t be adjusted simply by changing nominal exchange rate. factors such as national tradition, culture, family structures, demographics and social security system can ’ t be changed in the short term. as a result, it may take a long time for policies to yield intended impacts. iii. implications of the asian financial crisis for savings ratio in the east asia savings in the gdp are composed of resident