Monday, December 20, 2010

National Savings Rate Negative

The chart below shows the national savings rate (net savings of individuals, corporations, and the government). What we see is that for the first time since the Great Depression the aggregate savings level turned negative and is still negative.



What does this mean? It means the economy has been reliant on external sources of financing for our current level of consumption, which is sustainable… until it isn’t. Put another way, maintaining our current level of growth isn't completely in our hands at the moment.

This will either reverse at some point in the future with:

  • Absolute savings increasing through a higher savings rate, which will cause the economy to slow (all else equal) as we get our balance sheet in check (i.e. what is going on in Europe)
  • The growth of the private sector, which will allow the absolute level of savings to increase without a large increase in the savings rate as a percent of GDP; the denominator will grow, rather than the numerator in the savings as a percent of GDP ratio (i.e. the goldilocks scenario)

Source: BEA

6 comments:

SPECTRE of Deflation said...

Thanks for the chart Jake! Damned if that isn't one ugly chart concerning savings for individuals, businesses and government. Concerning the savings of individuals, they really aren't saving at all. Debt is being written off by the banks at quite the pace, and it shows up as savings for individuals. So while a liability is being waived to the individual and showing up as savings, the business must write off any imaginary equity in the asset at the same time. Deleveraging is a real mother to say the least.

foosion said...

Net savings is negative due to government. When the economy gets better, govt revenue should increase (more taxes) and spending should decrease (less safety net), so there's no need to sustain the present level long term.

Jake said...

foosion- i'd file that under a blend of option #1 and #2. #1 in that a government that decreases spending will be a drag on the economy all else equal (less "G" in the C + I + G + NX equation) and #2 in that growth (which increases revenue) will allow the savings to increase without a change in savings as a percent of GDP.

Tom Lindmark said...

Great chart. One of your best.

Fascinating how the personal savings rate seems to have started falling off a cliff around 1980 and starts back up in 2009 or so.

How much is attributable to economic events and how much to demographics? Boomers feeling their oats as they start making real money in the latter part of the century and then getting religion as the recession delivers reality?

SPECTRE of Deflation said...

In 1995 debt to income for individuals stood at 65%. By 2007 - 2008 it had run up to 135%. Today it sits north of 120% even with all the delevering going on by all concerned. Is it any wonder why we are where we are when you realize that it wasn't just individuals doing this but businesses and especially government as well.

Anonymous said...

Negative net savings means that Americans, as a whole, for the first time since the 30s are lending fram abroad. A sure sign of death? I don't think so.

In all credit markets saving has to equal lending. The world cannot be a net creditor, nor a net borrower, unless unless we establish an intra-galaxy credit market.

Johan

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