Death by Savings

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machinehead's picture
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
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.

mred's picture
Status: Bronze Member (Offline)
Joined: Apr 8 2008
Posts: 96

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