I think Pettis has made the point that this is a simplification before (sorry i cant give you the exact date of posting). I think he takes the US as a hyper deficit country, and China as a hyper surplus example to make the theory easier to understand. Of course there are other surplus countries / deficit countries. Generally deficit countries will be consuming less though, so i think that the argument can stand.

Surely there is a difference in terms of degree and scale between the drop in one and the drop in the other?

China’s trade surplus is a sum result of her trades with many and not just one partner (USA). Other equally large trading partner such as EU matters just as much, and in this regard, unless the EU and the USA and the rest of the trading partners are working in concert and are acting-reacting with the same policy response, the conclusion based on this linear, one-on-one, static relationship in my view is questionable.

In my view, the sum net difference between China and her various trading partner is what matter most to China in the trade surplus/deficit bottom line, and it’s a relationship between China vs many and not just USA alone.

That excess saving in Asia lead to excess purchase of American debt…

In other word, the entire crisis was caused by the Asian countries for buying excess American debt that lead to lower interest rate in the USA. The lower interest translated into cheaper borrowing in which people borrowed greatly to massively speculate in the dot.com, housing boom and natural resources (Barrel of oil peak price $150) and every bubble inflated by cheap money would eventually blow and that is what had just happened in the last several years!

Solution would be that Asian economy stop purchasing American debt and use it to purchase other thing or invest in their respective countries! China, Japan and the oil producing nations are moving into short term debt that has one or two year maturity, thus, the Fed need to massively purchase the long term debt to keep their interest lower and at the same time, China and other countries that held long term debt start to sell their long term debt to the fed and in turn use it to purchase short term debt. The way I see that China and other countries are moving away from long term debt into short term asset for better liquidity.
Here is the link:http://blogs.cfr.org/setser/2009/07/17/may-tic-data-still-buying-us-assets-but-just-the-liquid-ones/

The entire “Saving Glut Theory” and their supporter is to exonerate the Federal reserve responsibility of the current crisis! It was a crisis created by Alan Greenspan for his loose monetary policy in which he lower the interest rate to 1% for an entire year after the 9/11 attack in order to stimulate the falling economy that was caused by the dot.com bust and of course the terrorist attack! These easy money were used to inflated the real state bubble and now everyone is suffering for it!!!

The next bubble would the Dollar bubble if the Federal reserve keep printing money and buying the long term treasury bills!

Even at a per capita household income of 10,000 RMB, that still means less than 50% of the approximately 30 trillion RMB GDP is attributed to individual income for 1.3 billion. So where does the rest of the money go? The tax based receipts of the government are no more than 6-7 trillion RMB. Corporate income tax (25%) was to be 643 billion RMB in 2008, meaning a corporate income of 2.5 trillion RMB.

Am I omitting provincial and municipal government revenues? SOE wealth creation?

While I don’t mean to suggest a fudging of the numbers or that tax cheating is going on, I am truly trying to figure out where the roughly 30 trillion RMB GDP really goes. If someone could point me to a website or study, I would appreciate it.