Ahead of tomorrow's personal savings release, lets be reminded of the longer term trend...
While the savings rate has turned up to ~5% since bottoming in early 2008, we are still a long way off from the 8-10% level seen from the early 1960's to mid-1980's. It is also important to note that paying down debt liabilities is included in the above savings rate, thus the actual amount "saved" has not actually been this high in recent months as the consumer delevers.
Source: St. Louis Fed
Two major points that complement that as well:
ReplyDelete1) real GDP growth was higher when Savings was higher (as you'd expect from basic growth theory). Savings => Investment => Growth. The case for getting back to 60% Consumption and 10% Savings is very strong.
2) The structural shift coincides almost exactly with financial de-regulation ~1983. As does the spurt in accelerated debt growth. The overwhelmingly largest growth in debt was Finance debt, which arguably went into non-value creating internal trading.
The business case for re-regulation is pretty strong IMHO: Banks As Businesses: Performance, Reform and Blindsidedness
dblwyo -
ReplyDeleteThere's regulation aplenty out there, as well as (too) numerous gov't agencies and oversight committees.
We don't need more regulations (that will be disregarded), we need execution and enforcement of current ones.