U.S. Savings Rate To Increase, Finally

In recent years much has been made about how the savings rate in this country was hovering around (or even below) zero. More and more, Americans have been living beyond their means via credit. With some banks reeling from extending credit to people they should not have, some economic pundits are predicting an increase in the domestic savings rate.

Among them, James Grant of Grant's Interest Rate Observer:

“The American consumer is no more prone to save than the American Marine is to retreat. However, with joblessness rising, house prices falling, gasoline prices orbiting and credit contracting, even America’s iron wallets must adapt. Hovering near the zero-percent marker, the savings rate has little farther to fall. It takes no great predictive courage to suggest that it may begin to rise, which we hereby do. If the savings rate returned to just half its level in 1992, it would reach 3.9% of disposable income, up from 0.6% at present. Disposable personal income is jogging along at the rate of $10.5 trillion a year. An increase in savings of 3.3 percentage points would amount to $346.5 billion of deferred spending.”

How might this increased savings take shape? Most likely through high-yielding

money market

accounts like those offered by the likes of M&T Bank (MTB), whose

M&T Bank eMoney Money Market Account

currently offers 3.25% interest. Not surprisingly, large banks are advertising these types of products more and more, as mortgages go bad. It is quite a shift in focus for their marketing plans.

Not only is this good for Americans (who have not saved nearly enough, on average, to retire comfortably at a reasonable age), but it is also good for our banking system. Deposit gathering institutions will welcome the chance to grab some market share in the savings deposit business, and thereby boost their depressed earnings. Increased savings in this country would really be a win-win scenario for individuals and banking institutions alike.

Comments

[bbzz24:]

it is baffling to see that someone sees 2% interest 'returns' (taxed at 35%) attractive when inflation is running at +5%...

2008 Aug 08 03:36 PM

[phdinsuntan...:]

you own some stocks on MTB or you work for them?
this is funny, to say the less...

2008 Aug 08 03:52 PM

[tylakewalker:]

"may begin to rise"

Wow, such a bold prediction. The savings rate may begin to rise or it might not.

My suggestion. Start saving by not purchasing any worthless non-predictions from James Grant.

2008 Aug 08 03:59 PM

[huangjin:]

It's often unattractive to invest at turning points. Savings look bad, but if asset prices are deflating, inflation will follow. Better to earn 0% than lose 10 or 15%. It also looked bad to invest on margin in 1982 with the prime rate at 15% and the market continually falling, but you would have made money.

I doubt a TV show about saving money and earning 3% will get ratings, but it is the new growth market. Get ahead of the herd and lock in the high rates.

2008 Aug 08 05:10 PM

[Frank Rong1:]

0% saving rate is false. The way to calculate the saving rates in this nation is flawed. Amercian consumers pay 15.65% social security Tax to uncle sam, that should be accounted as saving. And also, the saving rate does not adjust for principles and interests. eg. If you pay a monthly mortgage payment of 1500, that 500 is principle, and 1000 is interests. 500 should be called savings.

In fact, American consumers are the biggest savers in the world.

News media is the most stupid segment of our economy, many reporters are retarded socialists.

2008 Aug 08 06:37 PM

[discov:]

Credit...bad credit...credit card use is up huge in the last two months and you are telling me actual savings are going to rise. You follow that with the idea that something yielding less than 8% a year is a good investment at this time............

I can't agree with any of it,
concisetrading.blogspo.../
Ryan

2008 Aug 08 08:36 PM

[bearfund:]

Frank, that might be true if the money paid into social security went into a SWF or a similar agency that invested in something productive or even bought gold on the open market and stuffed it in a vault somewhere. Instead, mostly it is lent back to the government at miniscule rates of interest through accounting tricks. The government in turn fritters it away. When the time comes to claim the "savings", the only ways to do so will be (a) printing money, (b) borrowing more (at much higher rates), or (c) increasing payroll taxes. There is no social security trust fund. Therefore there is no savings. It's all illusory. Most Americans correctly account for FICA deductions as taxes. They're not savings and they're not coming back to you.

2008 Aug 08 10:57 PM

[SnPTrader:]

Bearfund, right on. Frank Rong sounds like Larry Kudlow who believes you can manipulate any figure to be sure that the "Goldilocks" economy is well fed. Americans have forgone savings to continue to bolster an economy and government that has deceived them. We no longer produce most of the goods we use and service, through low paying jobs, America's corporate elite (who by the way stash their money off shore). We continue to make guns however.

2008 Aug 09 11:05 AM

[CLH:]

Chad---Your are right. The savings rate will go up--same as the US 1930s and Japan 1990s. Inflation will drop and a new generation of savers will be produced. Good analysis.

Im afraid many banks will not make it as some people refuse to pay their debts (or are unable)

Im afraid the gov is NOT a mechanism for saving. Few people will ever get back what the gov steals.

2008 Aug 09 11:12 AM

[inthemoney:]

Put money in a bank at 2% rate? No, thanks. I will take 8% dividend any day.

2008 Aug 09 01:44 PM

[locke:]

I agree with the earlier poster. 401ks, IRAs, homes, and even SS contributions should be considered when assessing americans' "savings rates."

2008 Aug 09 09:24 PM

[SnPTrader:]

locke, as Bearfund mentioned, Social Security is a fund that the government has used to cover other expenditures to such as the war or any expense the government is obligated to pay but it lacks funds because of the lower of revenues (taxes). The government then places its IOS in the fund for later pay back. We have a deficit (period). If you expect SS payments we need taxes to cover its payback otherwise the government will just print money and cause inflation, then your SS will be inflated and worthless if you get any. IRAs and 401Ks are possible savings but home equity look at the present market and true value. We ARE NOT the biggest savers in the world we just want to believe we are as we use credit to wipe out our savings. You can't leverage your future. Go to Vegas if you believe that.

2008 Aug 10 01:54 PM

[SnPTrader:]

BTW, regarding home equity. What equity? How many of you have home equity loans? Goldilocks has more shoes in her house than she has equity.

2008 Aug 10 02:01 PM