The Black Swan of Savings in the U.S.

People love to talk about outlier events as black swans, pace Nassim Taleb, but they tend to fixate on negative ones. Check the (mostly) positive black swan in the U.S. savings rate, with May personal savings rate touching 6.9% (according to the BEA today), neatly creating the largest three-year increase in savings in modern U.S. history.

Comments

[PastTense:]

I expect much of this was due to borrowers (who are averaged in with savers to give an overall savings rate) who lost their ability to borrow--banks stopping HELOC availability to borrowers with underwater mortgages, credit card issuers closing credit lines to people with poor credit ratings or who lost jobs, auto companies finance subsidiaries losing their ability to loan....and only a fraction of this due to people realizing the importance of saving for rainy day.

Jun 26 11:09 PM

[Alex Filonov:]

And you think this is good? Money saved is not spent, lack of spending is the main problem in any crisis.

Jun 27 01:38 AM

[Rokjok777:]

Interesting, but the term "Black Swan" doesn't apply, since that refers to something completely unknown and unexpected. The world knew only white swans, all swans were white by definition. Then black swans were discovered in Australia, completely unexpected. That term doesn't cover a rise in the American savings rate, inching back to where it was from 1900-1960...

Jun 27 05:11 AM

[I am not a ...:]

Stimulus money?

Jun 27 08:49 AM

[DaveW:]

Exactly. Last month more than 50 million retirees received $250 check from the government's stimulus pool. Next month, look for a drop in personal income and savings rate.

C'mon Paul, write first ask questions later?


On Jun 27 08:49 AM I am not a number.. wrote:

> Stimulus money?

Jun 27 09:56 AM

[Old Trader:]

Alex,

Think of it as taking some nasty tasting medicine; it may make you gag and choke on the way down, but ultimately, its good for you.


On Jun 27 01:38 AM Alex Filonov wrote:

> And you think this is good? Money saved is not spent, lack of spending
> is the main problem in any crisis.

Jun 27 09:56 AM

[ebworthen:]

The savings rate jump could simply be taking money out of the market and putting it in the bank.

The S.O.B.'s on Wall Street were playing with our money at the craps table and lost, then we and our children were taxed to save their sorry rear ends, so why give them any more chips to party with? Really now.

I had my cash in a safe from October through March, got it out of WaMu just in time. Jamie Dimon isn't going to get to play with it, moved it to the local credit union.

I think it is unethical to put money into banks or stocks in general at this point. I hope the whole thing collapses a la 1932 and some of the greedy unethical b-tards jump so we can get back to having a reason to invest in America and not feel like pack mules.

Jun 27 10:58 AM

[Alex Filonov:]

And what exactly this medicine is going to save us from? By the way, Japan has the highest savings rate among developed countries, so Japanese economy should be in excellent shape, right?


On Jun 27 09:56 AM Old Trader wrote:

> Alex,
>
> Think of it as taking some nasty tasting medicine; it may make you
> gag and choke on the way down, but ultimately, its good for you.
>

Jun 27 11:39 AM

[MGA_1:]

Excess and useless consumption is what got us into this terrible mess in the first place and savings is the natural process by which you rebuild capital so that it can be redeployed into the economy and invested in manufacturing, infrastructure, etc.

An economy built primarily on consumption is not a healthy economy and we are seeing the process of restructuring happen right now.

Jun 27 11:41 AM

[American in...:]

That's incorrect. Savings is defined as income minus consumption. So savings paying down debt and buying assets. Movements between the stock market and bank deposits is irrelevant.


On Jun 27 10:58 AM ebworthen wrote:

> The savings rate jump could simply be taking money out of the market
> and putting it in the bank.
>
> The S.O.B.'s on Wall Street were playing with our money at the craps
> table and lost, then we and our children were taxed to save their
> sorry rear ends, so why give them any more chips to party with?
> Really now.
>
> I had my cash in a safe from October through March, got it out of
> WaMu just in time. Jamie Dimon isn't going to get to play with it,
> moved it to the local credit union.
>
> I think it is unethical to put money into banks or stocks in general
> at this point. I hope the whole thing collapses a la 1932 and some
> of the greedy unethical b-tards jump so we can get back to having
> a reason to invest in America and not feel like pack mules.

Jun 27 01:19 PM

[Northstar10000:]

Of course this is good it will simply speed up the implosion factor by 6 months.

Jun 27 05:16 PM

[MGA_1:]

Japan had a gigantic real estate/stock market bubble that crashed. The govt went on a spending spree that did absolutely no good and probably should have let things crash down then they could have started anew.

The savings rate went *negative* for the US in '06. Are we trying to consume our way back to those good times?

There is no way to avoid the downturn - it's just gonna happen. The groundwork for longterm prosperity are:
* Let people begin to save again - this is capital that can be borrowed to rebuilt industry
* Start running balanced budgets both federal and local
* Put the dollar on a gold backing so the govt can't inflate away problems or try and inflate to prosperity.
* Let the system find its natural equilibrium (w/o govt intervention).

In the mean time, the system has to crash down to clear out all the bad debt, then we can start again.

Just an FYI - there are some excellent books out there, but it's most interesting that there was a deep depression in 1920 that was initially worse than the great depression. What did the govt do... nothing. After a year and a half, things cleared out and we were off to the races again. I think if this depression were allowed to run it's course naturally it would be worse than the first part of the great depression, but the debt would be cleared out and we could being the process of rebuilding manufacturing once again in the US.

www.youtube.com/watch?...


On Jun 27 11:39 AM Alex Filonov wrote:

> And what exactly this medicine is going to save us from? By the way,
> Japan has the highest savings rate among developed countries, so
> Japanese economy should be in excellent shape, right?

Jun 27 08:17 PM

[NWA10000:]

Just in time for what, Filonov?Your imaginary loss if you kept it at WaMu? Good thinking, Filonov, if you hadn't taken it out of WaMu it'd be at Chase! And then what? Jamie Dimon would get to play with it! Why not keep it in a mattress rather than a safe? Credit Unions are better...where do you think they keep their money?

On Jun 27 10:58 AM ebworthen wrote:

> The savings rate jump could simply be taking money out of the market
> and putting it in the bank.
>
> The S.O.B.'s on Wall Street were playing with our money at the craps
> table and lost, then we and our children were taxed to save their
> sorry rear ends, so why give them any more chips to party with? Really
> now.
>
> I had my cash in a safe from October through March, got it out of
> WaMu just in time. Jamie Dimon isn't going to get to play with it,
> moved it to the local credit union.
>
> I think it is unethical to put money into banks or stocks in general
> at this point. I hope the whole thing collapses a la 1932 and some
> of the greedy unethical b-tards jump so we can get back to having
> a reason to invest in America and not feel like pack mules.

Jun 27 11:50 PM

[Alex Filonov:]

I know what happened in Japan. It doesn't change the simple fact that Japan has the highest savings rate in the developed world. Had before the real estate bubble crashed, had after, has now.

It's time for everybody to learn the simple economics: "Paradox of thrift". The problem is simple: it's better for every individual to save more and spend less. Unfortunately, when most of people start to behave this way, economy crashes and a lot of people suffer, including those who saved. If you lost your job, you've got nothing to save. Your savings can give you some cushion, but they can't last forever. If you have a business, no matter how thrifty you were, your business is going down when customers disappear.

As for balanced budget, it was tried by Hoover in 1931. Result is well known and not exactly positive. Later repeated by Roosevelt in 1937 with similar result. Forget about it, politicians doing that in crisis aren't going to survive next elections. And good riddance.

On Jun 27 08:17 PM MGA_1 wrote:

> Japan had a gigantic real estate/stock market bubble that crashed.
> The govt went on a spending spree that did absolutely no good and
> probably should have let things crash down then they could have started
> anew.
>
> The savings rate went *negative* for the US in '06. Are we trying
> to consume our way back to those good times?
>
> There is no way to avoid the downturn - it's just gonna happen.
> The groundwork for longterm prosperity are:
> * Let people begin to save again - this is capital that can be borrowed
> to rebuilt industry
> * Start running balanced budgets both federal and local
> * Put the dollar on a gold backing so the govt can't inflate away
> problems or try and inflate to prosperity.
> * Let the system find its natural equilibrium (w/o govt intervention).
>
>
> In the mean time, the system has to crash down to clear out all the
> bad debt, then we can start again.
>
> Just an FYI - there are some excellent books out there, but it's
> most interesting that there was a deep depression in 1920 that was
> initially worse than the great depression. What did the govt do...
> nothing. After a year and a half, things cleared out and we were
> off to the races again. I think if this depression were allowed
> to run it's course naturally it would be worse than the first part
> of the great depression, but the debt would be cleared out and we
> could being the process of rebuilding manufacturing once again in
> the US.
>
> www.youtube.com/watch?...

Jun 27 11:57 PM

[MGA_1:]

I'm sorry, I needed to add one more thing: reduce taxes and get the govt out of the way.

There was heavy govt intervention in the 1930's by FDR. Program after program after program, heavy taxes (top tax rates of 90%), and intervention into business They depression lasted 10 years - govt intervention didn't help at all. In the depression of 1920, the government budget was reduced and taxes lowered. It lasted 1 1/2 years.

To mean it seems insane to ask already broke people to take on more debt and spend even more - when does it end? How are they going to pay off their mortgages and credit cards? Aren't the lenders going to eventually ask to be repayed? Do you want the rest of us who've saved into debt to save the economy? What happens when we are supposed to repay our debt? What are the lenders going to do?

And sorry... just one more thing - the govt needs to default on our debt so we can start again with a clean slate. I think it's going to happen in a couple years anyway.

Jun 28 12:26 AM

[Did U Think...:]

Paul,
Savings IS the black swan of this Ponzi economy!! That's because the economy relies so completely on the creation of new debt to fuel spending that savings and paying off debt are DEFLATIONARY in the short term. Long term? GREAT idea and I totally support it as the right thing to do now and always but short term it will fuel the disaster which is this falling house of cards economy. Why do you think our administrations talked about The Paradox of Savings and chastised Chinese consumers with vilifying terms like "Excess Savings" for not "doing their part" is keeping this Ponzi scheme going?

For the past several decades people always said "don't bet against the American consumer". For the next 5-10 years they will be saying "don't count on the American consumer".

Jun 28 09:55 AM