which of these explanations, or some combination of them, is on the mark and whether there are unknown fourth or fifth explanations. in each case there is an international self - interest argument to explain the situation, and it is difficult to assess the durability of this self - interest. the co - dependency view could have a natural stopping point when foreign central banks begin to worry about their heavy asset concentration in dollar - denomination assets and diversify their stock. the world - saving view could have a natural stopping point when the populations of the accumulating countries begin to retire, run down their assets, and sell their dollar - denominated assets to support the consumption of retirees. the disappearing - home - bias view could have a natural stopping point when wealth portfolios are rebalanced. this is all new and unexplored territory. but determining what explanation may be correct and stable may also be somewhat beside the point. however stable the underlying phenomena, it is much more stable for the united states to increase its own national saving and finance its own investment. this approach would support investment in the short run and make this investment more profitable in the long run, because the returns on capital would not be sent abroad. other countries may still invest their saving here, but the united states would have a higher base of its self - financed investment. this situation would seem to be far and away the preferred course from a risk - management standpoint. under such an approach, which i will term co - independence, the united states would gradually cut its budget deficit. doing so would reduce aggregate demand and hence require other changes to preserve full employment. one such change would be that currency rates might shift in the direction of increasing u. s. net exports. to the extent that stimulation of net exports did not offset the fiscal actions fully, there is always monetary accommodation. one of the key mandates of the federal reserve is to preserve sustainable employment levels, and the fed certainly could do that. in this strategy, other countries would have two requirements. to the extent that currency rates might need to adjust to restore international balance, foreign central banks should permit normal market readjustments. and to the extent that foreign net exports might decline as the united states cut its own trade deficits, foreign countries may need to stimulate their own economies, which they could do with some combination of monetary and fiscal policy. the result would be to preserve full employment around the world but with reduced capital account imbalances. conclusion the

recently proposed, household saving would go up but government saving, in the first instance, would go down by the same amount, meaning that the initial impact on overall national saving would be nil. but carve - out individual accounts might eventually reduce saving because households getting individual accounts who are already saving for retirement might cut back on their pre - existing saving. hence carve - out individual accounts seem more likely to reduce than increase national saving. this is not the only criterion for judging between add - on and carve - out individual accounts, but i think it is an important one. there may also be some way to compromise between mandatory add - on individual accounts that raise national saving but could be a tough sell politically, and carve - out individual accounts that are not likely to raise national saving. some have suggested raising employee pension contribution rates by automatic default options for employer defined - contribution account. under such a plan employees would be automatically enrolled in the employer's plan and would have to " opt out " to reject participation. moreover, firms could be forced to carry employer defined - contribution accounts, as is done in ireland. see congressional budget office ( 2005 ), budget and economic outlook, january 25. edward m. gramlich ( 1998 ), is it time to reform social security? ( university of michigan press ). other measures that might raise national saving are tax incentives to increase private saving, such as individual retirement accounts ( iras ). these essentially reduce or eliminate the taxation of interest income and hence provide a price inducement for households to save more. while such measures are often advertised as ways to increase saving, one must be very careful. on one side, many households can easily claim the tax advantages by diverting existing assets into iras and not saving any more. on the other side, iras entail a federal revenue loss and a rise in deficits. since national saving is defined as private saving less deficits, the larger deficits can actually make national saving decline in response to a measure that purports to increase national saving. if the private saving effect were large enough and the revenue loss small, it is also possible that iras would have the anticipated effect of increasing national saving. one cannot give a purely theoretical answer to the question - it depends on how the numbers come out. 7 for years the economics profession has been engaged in a strenuous debate about these numbers, but it should be noted that overall household and national saving rates have declined significantly