Monday, March 1, 2010

Why Save?

One reason for the continued low savings rate (and continued spending)?

No place to store it (unless you want limited return).

The below chart details the historical savings rate vs. the three year Treasury yield (I used three year yields as this is a relatively safe investment on the duration side).

Coincidence or a legitimate relationship?

Source: Federal Reserve / St. Louis Fed


  1. Indeed, yet another dark side effect of zero interest rates for years was the absolute punishment of savers. Not a coincidence IMO.

  2. The one on Japanese employment and unemployment was brilliant. This one, not so much, as your tag line suggests. One way to spot hack work: there's no mechanism to explain the relationship.

  3. Dave-

    I must say I disagree. Low rates provide an incentive to those looking to purchase a good at some point in time, to do it now. Not only does a reduced rate hurt if trying to save up for the entire thing and accruing 0% interest along the way, but one may be able to afford the whole thing now if interest rates are low enough.

    On the flip side, someone with a loan is less likely to pay it down than if their rate was higher. I personally have stopped paying down a certain floating rate loan of mine as the rate has since dropped to ~2% (paying outstanding debt down counts as savings in these figures).

  4. Dave,
    that graph means plenty if you can see it.

  5. Fixed income is just one way of saving.

  6. Yup, we are "savers" but now are making purchases before inflation erodes our savings. In the last year, new floors, new piano, new washer/dryer, new gutters, and tint for the windows on the house. Next on the list: landscaping the entire yard, garden storage shed/workshop, remodel kitchen and bathrooms. We are not "under-water" on our mortgage (which should be paid in 4 years due to currently making double monthly payments). Why save . . . we have enough and will have a home we are happy with, if we cannot sell for 20-30 years

  7. Johan- point taken and likely one of the reasons risk assets have done so well (if you can't earn anything on low duration Treasuries, you need to buy risk assets to earn something, in which case risk assets become richer).

    That said, the short-term Treasury rate IS important because in theory they are the closest thing to the "risk-free" investment for U.S. citizens.

  8. Dave -

    One way to spot an ass: introduce a straw man argument and then belittle your counterparty based on it. In your case, assume that posting an observation without pinpointing a cause makes posting the observation a “hack job”.

    Ever hear of coincident indicators???

  9. Considering I asked coincidence or legitimate.... Yes, I have.