Assorted links

1. China theory of the day: The Chinese save so much to compete for mates.  Should I believe it?

2. Paying interest on reserves, and why it should be easy to disarm future inflationary pressures.  Do I believe it?  (Brad DeLong comments.)

3. Markets in everything: pirate hunting cruises; should I believe it?

4. Stores are cutting back on variety; I believe it.

5. Farrah Fawcett and Ayn Rand.


no do not believe it (small effect). savings compensate for a lack of healthcare options.

rdg, I agree, but it's not just the lack of healthcare options, but also the lack of social safety and the lack of confidence in the government in keeping the pension (due to corruptions, or in the extreme, revolution).

Paul McCulley says: "Thus, we can categorically say that the near-zero Fed funds rate is not, for the moment, fueling an inflationary pace of aggregate demand growth relative to the economy’s supply potential."

Ah, that pesky little "for the moment" - could not bring yourself not to hedge your bets, could you?

"Conceptually, the Fed could “soak them up,† by selling the securities outright..."

Sell to whom? The Chinese, who are doing some selling of their own? The much shrunk former mega-banks? Selling a trillion dollars worth of bonds is not the same as selling a billion worth. Yes, the Fed can always sell Treasuries (likely competing with the Treasury), but does Mr. McCulley venture a forecast of yields on Treasuries in 2012? Meanwhile, selling those agency MBS's, without embedding some put option (currency?) to sweeten them - yeah, all those folks lining up for oceanside property in Nebraska will gobble them up, for sure.

How does a Chinese male demonstrate savings balances without spending?

(Are Chinese savings held in ways potential mates can observe? Or does courtship quickly reach a point where authenticated financial statements are exchanged?)

I'm going to second babar's theory about the one child policy. Franco Modigliani had a paper ("The Chinese saving puzzle and the life-cycle hypothesis" JEL 2004) explaining that since children can act as a means of old age support and so are in a sense a substitute for financial savings, the one child policy impelled a substantial increase in savings rates. One should note, by the way, that in China children are required by law to provide for their elderly parents, so the savings motivation really isn't that far-fetched.

Further, if this savings motivation is biased by gender (because males by tradition give more, or simply because males earn more and so have more to give) then this will create biased sex ratios roughly in proportion to the marginal desire for old age savings. Avi Ebenstein and Steven Leung have a working paper exploiting differences in introduction dates of pension systems in different parts of China finding that the provision of pensions does reduce the increase in the sex ratio, again suggesting the savings motive for sex biased births. (See

On China: you could easily see it going the other way. Imbalanced sex ratios encourage Chinese boys to spend money on flashy things to attract women. It seems like sex ratios might explain the magnitude by showing how a cultural quirk becomes exaggerated, but not the direction.

Isn't there an argument that in crime-ridden poor communities, where many of the eligible males are either dead or in jail, the distorted male-female ratio encourages flashy spending over savings? Perhaps this does explain direction.

Re: the theory on Chinese savings

There is a testable hypothesis here. There are large ethnic-Chinese communities throughout the poorer and more gender-balanced countries of Southeast Asia. If this theory is true, savings rates among ethnic-Chinese should be lower than mainland Chinese and shouldn't be very different from the savings rates of other ethnic groups. Ethnic Chinese in Southeast Asia tend to marry within the community but intermarriage isn't exactly rare.

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