Death by Savings
In a typical recession-related pattern, the personal savings rate
has started to climb. The linked chart shows that a 3-month moving
average of the savings rate has moved from near zero to as high as 3
percent in recent months —
one sense, this is a healthy development — people shouldn’t be living
in La-La Land with zero savings. But the downside is that much of these
new savings comes directly out of consumption — that is, right out of
the top line of GDP.
Theoretically, of course, savings gets
recycled as investment. But short-term, if people save money that they
formerly were spending on non-essentials, consumption drops overnight,
while investment responds only slowly.
The real nightmare would
be if folks get so scared that they repudiate our state religion —
Consumerism, with a capital ‘C’ — and fall into the heresy of saving
10 or 12 percent of their incomes. GDP would take a 10 percent spill
… which would feel exactly like deflation, even though it’s not
really the same thing.
Search your children’s bedrooms for the deadly graven image of the piggy bank — our path to national destruction. LOL.