A New Culture of Savings?
I think Catherine Rampbell’s article on whether the slump-induced shift to higher savings rates in the United States is here to stay could have benefited from some more clarity. Here’s a chart:
For a while in 2005 the savings rate was negative. And for a couple of years after that, it was extremely low. Then came the recession and the current leap up to about four percent. I think we can tell that the shift away from a savings rate of two percent or lower probably is quasi-permanent. That’s because it was never sustainable. And you can also tell that its roots in the structure of the American culture and economy can’t be all that deep since it’s a period that only started in 1998. But before reaching that point, the general trend in the 80s and 90s had been toward lower savings. So when we ask whether Americans will shift to a high-savings equilibrium are we talking about saving around 8 percent like in the sixties? Around 10 percent like in the seventies? The plateau around 7 percent we had in the late eighties?
In other words, there are a lot of different possibilities here. If we returned to saving around 4 percent that would be a big shift but would also be consistent with a low savings rate in historical and global terms.
14 Responses to “A New Culture of Savings?”
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May 10th, 2009 at 1:30 pm
What’ll be interesting to me is what happens to all that ‘new’ money sloshing into the financial system as a result of this increased saving.
Some folks say that the housing bubble was a result of the fact that Greenspan’s interest rates were so low that a lot of money was ‘forced’ into real estate because that’s the only place where savers, desperate for yield, could get anything for their money following the dot com implosion.
If Wall Street manages to eat up all of that money by playing more new and varied games with structured finance vehicles, instead of investing it in new industries that can actually improve productivity and create jobs for Americans, then an increased savings rate in and of itself won’t accomplish a whole heck of a lot.
The point of increasing household savings it not that it improves people morally somehow by delaying consumption, it’s that the money they save can be directed toward capital investments that make things better in the future. Giving more money to the banksters doesn’t necessarily mean that the country will improve.
May 10th, 2009 at 1:46 pm
Never say never.
The savings rate climb is partly the result of the liquidation of other assets and those being put into savings catagories. The other part is probably a statistical fluke. Money markets are considered savings but interestingly they are offering negative returns now, with the added bonus of not being actually liquid in that MM assets are loaded with crap. Money markets might be defined as savings but the facts say they re dis saving.
The seminal year 1982 appears again. Morning in America. That is the very same year that debt began its relentless climb to 300% of GDP, and still rising mind you. The year the stock market started its bull run. Now after the crack up we are doubling down on the policies of discouraging savings and encouraging debt, low interest rates. Also trying to get every last dollar possible into financial asset markets to inflate them.
These things are all related. The system is designed to encourage debt and discourage savings, obviously. Now, against all odds we are doubling down.
Since we don’t and haven’t had the savings to provide capital, much less pay off our old debt we took to borrowing it from overseas. Not just Uncle Sam mind you but half of our $11 trillion in debt is owned by foreigners. Well we did but that isn’t enough anymore. Even with the savings jump it isn’t enough. That is why the Fed is not printing, monetizing our debt. That is the proper way to look at it. The Fed will not be able to get off this road. Use your imagination and try to imagine a good outcome.
May 10th, 2009 at 1:48 pm
Edit on #2
That is why the Fed is NOW printing……
May 10th, 2009 at 1:57 pm
Gee, do ya think the decline in savings rates might somehow be related to the fact that incomes for ~80% of the population have decreased as well?
I would think this would be a more important factor in the savings rate decline than anything else.
May 10th, 2009 at 2:00 pm
Re: The Fed will not be able to get off this road. Use your imagination and try to imagine a good outcome.
The public debt of the United States was vastly graeter (relative to the size of the economy) at the end of WWII than anything we are likely to see now. The Fed even had to start monetizing it before the end of the war. Why didn’t that sink the US economy like the Titanic?
May 10th, 2009 at 2:25 pm
Because, obviously, at the end of World War II, the U.S. was actually producing things and exporting those things to the rest of the world. Growth at the end of the war counteracted that public debt load.
Now, the U.S. manufacturing base has been almost completely hollowed out, to use the phrase of Robert Reich, and now almost all the U.S. does is consume things manufactured in China and other countries.
We’re not going to get the growth to counteract all of the Fed-induced debt this time around. Not even close. Especially if all Wall Street banksters can find to do with our (saved) money is slice it, dice it, and sell it back and forth in more and more fine-grained structured finance vehicles and/or derivatives.
May 10th, 2009 at 4:19 pm
Re: Because, obviously, at the end of World War II, the U.S. was actually producing things and exporting those things to the rest of the world.
So, we do that again.
Re: Now, the U.S. manufacturing base has been almost completely hollowed out
So what? At the end of WWII Germany and Japan weren’t just “hollowed out”; they were reduced to rubble and ashes. Both came back handily.
Re: We’re not going to get the growth to counteract all of the Fed-induced debt this time around.
I really can’t see any reason why not. We’ve got 300 million peopel here. Even if half of them are too young, too old, too disabled etc. to work, 150 million can produce an enormous output. I see no factor limitig the US fron growing its way out of debt. It has the labor force, it has the technology, etc. Pesmissim is the drug of losers.
May 10th, 2009 at 8:54 pm
As many have pointed out, an aging population usually means a rise in the savings rate. So I wouldn’t be surprised if in the medium term we were closer to 8 than 4.
May 10th, 2009 at 9:12 pm
Now, the U.S. manufacturing base has been almost completely hollowed out
Really? I was under the impression that as of 2007 US industrial production was at an all time high in both nominal and inflation adjusted terms.
Are you just profoundly ignorant?
May 10th, 2009 at 9:23 pm
US Industrial Production Index:
http://www.fx-track.com/en/historical/industrial.php
May 10th, 2009 at 10:52 pm
regarding Mr JonF ’s #10 comment
The problem is that in order to rebuild our country there must be sacrifices.I think that many ,if not most,Americans are willing to work hard and sacrifice. Many do it on a personal level every day!
But what has been missing is our so called leaders failing to call for us to sacrifice.Remember when Bush told America to go shopping on September 12, 2001.
I think the comparison to Germany after WW2 is actualy quite apt. We should not think of this as a temporary ecomomic setback.We MUST drasticly rebuild our economy.We can not have an economy depending entirely on real estate and the stock market.
The true heroes of Germany were the “rubble women” who rebuilt Germany by hand ,brick by brick.We should do the same in America.
There are many organizations allready doing this.Habitat for Humanity is just one of many ,that are helping to rebuild our communities.
In Baltimore this past week we had almost two thousand volunteers come out and spend up to 12 hour a day for 6 days rebuilding a playground in Waverly that was burnt down by thugs.
That is how we can rebuild America.I agree with MR JonF. Pesmissim does not acheive anything.If we all spent less time engaging in political name calling,and instead did something practicle ,we would be a far stronger country.
We will not accomplish this by simply talking about how Europe is better .There are many great countries ,and people in Europe.But the answer to our nation’s problems lay in America.The people in this country are America’s greatest rescource.
May 10th, 2009 at 10:56 pm
I apoligise, i was talking about comment # 7 by JonF. Not # 10. My mistake.But I totally agree with your comment MR Jonf.
May 11th, 2009 at 8:39 am
We have had a low aggregate saving rate because people were allowed to widely borrow against their homes and credit cards.
These limits are being reduced by the banks and people are being forced to pay down their debts to new, lower, limits.
Until this pay down is finished we will have a high savings rate no matter what people’s personal preferences are.
May 15th, 2009 at 4:54 am
[...] Posted in Uncategorized by Mike on May 15, 2009 From Yglesias, we get this chart showing the declining savings rate, something I think about quite a [...]