The "Totally Informal Economics Roundtable" (TIER) met this past week -- the esteemed round table achieves a quorum whenever yours truly and my three astute economist friends from graduate school convene to discuss matters economic ... or to celebrate the birthday of one our school-age children, or for another social occasion. This week the topic was the global savings surplus.

Earlier on The FLY and on bloggingstocks.com, the TIER commented on the global savings surplus, or more-broadly, the large and increasing pool of global capital that's spanning the globe in search of return and yield.

It's hard for Americans to think in terms of a "savings surplus" with the U.S. posting a negative savings rate for more than a year, a savings rate well below appropriate levels for an advanced industrial economy, but the world is awash in capital, fed in part by savings. China, Japan, the European Union, and some petro-dollar countries have vast amounts of surplus savings. This fact, combined with a corporate capital base in the U.S. and abroad, has produced a multitude of unexpected consequences -- consequences that have lasted longer than many economists and analysts expected, the TIER agreed.

The first and foremost consequence, the TIER agreed, has been continued low interest rates for long-term bonds, mortgages, and certificates of deposit. Further, although recently released statistics from the Congressional Budget Office indicate the U.S. budget deficit in fiscal 2007 could drop to as low as $150 billion, five consecutive years of plus-$200 billion deficits normally should have led to a crowding-out effect on capital, resulting in higher long-term interest rates. Those high rates did not -- and have not -- materialized, the TIER agreed, due to that foreign savings surplus -- foreigners' willingness to buy U.S. Treasuries while spanning the globe for return and yield.

Moreover, the TIER agreed that the relatively low interest rate environment is likely to continue (barring a major geopolitical event), for at least the immediate quarters ahead. Further, the obvious benefit for U.S. citizens will be continued low mortgage rates. True, subprime underwriting requirements have been increased in the wake of subprime defaults, but note how long-term, fixed mortgages for good credit applicants did not rise, despite the subprime problem. Typically, they would. This time, they didn't. One major reason they didn't? The savings surplus that's depressing rates. Note also how long-term mortgage rates did not move up dramatically, despite the U.S. Federal Reserve's short-term interest rate increases. Again, typically during a Fed tightening cycle long-term rates usually move higher, at some point. Again, this time they didn't, thanks in part to the savings surplus.

The TIER also noted that the foreign savings surplus is the only factor behind today's relatively low interest rates. Although U.S. consumers are saving too little, Corporate America, conversely, is awash with cash. Witness the large numbers of private equity buyouts, merger and acquisition deals, share buybacks, and cash on company balance sheets. The TIER agreed that some of that capital is going into the aforementioned, but a considerable portion of it is not: it's sitting in U.S. Treasuries and related short-term instruments, increasing the pool of capital available for lending, with the obvious benefit being -- you guessed -- lower interest rates.

The TIER also noted that while the demand for capital is likely to increase in 2007-2009 in Eastern Europe and Latin America as these two regions continue to develop, those conditions are not likely to push long-term U.S interest rates up that much: there simply is a great deal of capital sloshing around in the markets today.

In addition, the TIER also noted that these developing nations will also reap the benefits of continued relatively low interest rates. The U.S. economy has slowed, but developing regions are likely to continue to experience solid plus-4% GDP growth, stimulated by attractive mortgage rates for houses, and for business financing. By extension, U.S. companies levered to the global economy like Caterpillar (NYSE: CAT), Boeing (NYSE: BA), Freeport McMoRan (NYSE: FCX), General Electric (NYSE: GE), and United Technologies (NYSE: UTX), among many others, are likely to continue to benefit from continued strong global growth. It's clearly a case, the TIER agreed, of the globally economy outperforming the U.S. economy for the foreseeable future, hence risk-tolerant investors can benefit from investments in global-levered companies.

Finally, the TIER also agreed that with U.S. federal budget receipts rising and exceeding projections, the U.S. economy growing, the global economy robust, and interest rates low, now would be a good time for the United States to address two major economic problems: the aforementioned low savings rate and federal budget deficit.

To be sure, current geopolitical events justifiably take up much of the Congress' attention, but the TIER agreed that Congress should nevertheless find the time to pass legislation that increases incentives for citizens to save, and that cuts the budget deficit, the latter through both spending cuts and tax increases.

Incentivizing savings and cutting the budget deficit are not easy tasks, but if Congress acts prudently, today's relatively low interest rates will continue, or move even lower -- and that will increase trade, help economies expand, and increase job growth and real incomes, both in the U.S. and abroad.

And one doesn't need an economics roundtable to know that these are all good things.