Michael Pettis

The Coming of a U.S. Savings Culture?

Tern, it is not clear that inflation necessarily discourages savings. During the last great period of US inflation, in the 1970s, US household savings exceeded their normal range of 6-10% of GDP to rise as high as 13% (I am quoting the numbers from memory, so please check before you use them elsewhere, but the magnitudes are more or less correct).

Unexpected inflation benefits borrowers, but expected inflation actually discourages borrowing in part because of high real rates and in part because high nominal interest rates have the impact of accelerating real payments on the debt, making cashflow more difficult to manage.