Americans are saving again... and the numbers are boggling

[charlie]

No, we haven't suddenly become pennywise, we're still big spending gits. But the savings rate ticked up to nearly 3 percent in November, after years in negative territory. Even such a modest increase means a massive torrent of money is pouring into banks:

...To put it in context, a U.S. savings rate of minus 1 per cent meant roughly $2-million a minute was flowing out of U.S. consumer savings into other things, mostly consumption, like TVs and home renovations, and so on. Or, on an annual basis, that worked out to almost $1.3-trillion exiting the U.S. banking system for other places.

Turn that around, however, and things get very different, very quickly. At a 3-per-cent savings rate, the United States will see $3.8-trillion showing up next year in the banking system just from domestic savers. At 7 per cent, almost $9-trillion will come rushing in as part of the savings tsunami. It is a fire hose of money pointed at the banks, and it's just beginning.

These are ear-popping figures. Three per cent, for example, produces almost five times as much in one-year U.S. capital inflows as the entirety of China's current Treasury holdings. It is four times as much as the proposed Obama stimulus plan. In short, at even relatively small changes, at least in percentage terms, the United States will rapidly transform its banking system and its capital markets.

All that money has to come from somewhere, however, and among the main sources will be the United States' largest trading partners, chief among them China. The U.S. economy is more than three times the size of China, and if you match the U.S. trade deficit against the Chinese trade surplus you'll see that China accounts for, on average, about 60 per cent of the U.S. deficit. As a result, China is going to need to find a way to replace more than 10 per cent of its gross domestic product if the U.S. savings rate returns to its historical norm. Making matters worse is that Chinese consumers are a smaller percentage of GDP than their U.S. counterparts, so to make the math work, Chinese consumers would have to up their buying by something like 25 per cent. Will it happen? No way...

http://www.theglobeandmail.com/servlet/story/RTGAM.20090116.wcokedrosky16/BNStory/crashandrecovery/home

[liberalmuse]

1. I can't save.

I just bought my best friend a laptop. She doesn't have the money, and has been wanting one for years. I enjoy giving my money away more than saving the bulk of it (though I am saving). I'm not a good person, more likely, just stupid.

[WheelWalker]

3. Hear, hear!!!

I am equally stupid, it would seem. Or, maybe we just understand that the value of money is what it can do for others. Blessings.

[charlie]

5. Aw, now

Generosity isn't stupid. Nor are you.

I can't save right now either. For decades, even through the worst times, I always managed to keep something socked away to help me sleep easier. Not now. It's a bit unnerving.

[notadmblnd]

2. Must be people taking what's left of their 401K and putting it into CDs

:shrug:

[DBoon]

4. those of us with good jobs

are REALLY scared and are putting money away for the inevitable layoffs

[CoffeeCat]

6. Am I a total cynic to wonder...

...if the neocons haven't all ready figured out a way to exploit the savings in those banks, somehow?

I can almost see them salivating right now, as they contemplate their options.

Have I lost it?

[charlie]

7. You're not alone

That was my first twinge too, though I wasn't thinking of neocons. Just ebullient bankers with monstrously swollen fractional reserves that present all sorts of exciting new ways to leverage themselves into oblivion. Again.

[Occam Bandage]

9. Given that you've totally conflated neoliberals and neoconservatives, yep.

[Occam Bandage]

8. You can always count on Americans to do the absolute wrong thing.

The economy's doing well? Let's take out lots of unnecessary loans, and accrue as much debt as we can! Result? Bubbles and future instability.

The economy's doing poorly? Let's save what little discretionary income we have! Result? Further economic declines, possible deflationary spiral.

[exboyfil]

10. Actually I prefer to go countercyclical

I plan to open up the saddle bags and replace our 1996 Escort with the bashed in side with another car we plan to keep for 13 years or so (getting me real close to retirement and going to a one car family). We could probably nurse the car another year or two (no guarantee), but I don't want to get caught on the backend of the reduced production if demand ever starts roaring back.

Hopefully this shock will stick in the minds of Americans so we don't get these bubbles in the future.