Americans’ Pandemic-Era ‘Excess Savings’ Are Dwindling for Many

New York Times ^ | 12/08/2021 | Talmon Joseph Smith

[EBH]

“From a macroeconomic perspective, it would certainly be helpful if consumer demand were to cool off,” said Michael R. Strain, an economist at the American Enterprise Institute, a right-leaning think tank. “Rooting for low-income households to have less savings is not great, but I think it’s important to remember low-income households are the ones who are hurt the most by inflation. It doesn’t sit well thinking, ‘Boy, it’d be great if households burned through their excess savings.’ But we’re not in a normal period.”

A Bank of America report in November noted that price increases for some goods, especially in food and energy categories, were “cutting the spending power of less-educated households by 4.6 percent on an annualized basis, compared to 3 percent for more-educated households.”

Still, a report from J.P. Morgan points out that consumers are likely to “eat into their accumulated excess savings to offset rising prices,” suggesting that vulnerable households could potentially face an even greater inflation challenge if those savings were absent.

Moody’s Analytics estimated that there was still $2.5 trillion left in overall excess savings as of October and that the total would decrease by $50 billion a month on average through the end of next year — with the fastest declines among those with the lowest incomes.

That mathematical modeling, by its nature, renders in statistics what many are feeling in more palpable ways. “The people looking at the data aren’t the people trying to put food on the table,” said Ms. Patton, the real estate agent turned Amazon Fresh worker. “The people that are writing this and thinking this have never struggled right now.”

[nathanbedford]

I agree with you, productivity is vital to overcoming inflation and the first step, obviously, is to resurrect the oil patch.

But then we run up against realities. It will take some years for petroleum production to be ramped back up. But the main problem will be, presumably, the inability of the government to borrow money to pay for its exponentially growing national debts, much less to subsidize productivity.

Heretofore, America's position as the reserve currency of the world together with other factors meant that we could seemingly borrow without paying consequences.

Our position as the world superpower and possessor of the world's reserve currency, meant that we could at least temporarily escape the inflation normally associated with profligate spending. We imported cheap goods from China, we exporter our manufacturing payrolls to China, we deflated domestic wages with unrestrained legal and illegal immigration. Thus inflation was held artificially low. We were in a wonderful sugar high, we could borrow and borrow, spend and spend with no immediate consequences. Every time consequences appeared imminent, such as in 2008, we simply "eased" our way quantitatively out of the setback by printing astronomically-it is so easy now it's done with the stroke of a keyboard.

We are talking in this thread originally about savings but the real rate of return is in negative territory so savings makes no sense. Cash is trash.In the process the Fed is now tapped out. It has no dry powder with which to revivify a failing economy should a major crisis come in the wake of a bubble burst. In other words, the Fed will not be able to borrow cheaply so the expense of borrowing will simply wreck our national budget. The numbers won't work with high interest rates which are probably inevitable as risk to bondholders becomes unsupportable with inflation.

Fiscal profligacy, the coin of the realm for Democrats and too many Republicans, will not work because the treasury is empty. Our defense budget will have to be slashed, entitlements too and all the other goodies with which democrats buy elections. But if it falls to Republicans to cut the entitlements and goodies that the electorate has become addicted to, what will become of the Republicans?

So what do we do? If we can't borrow to make the government budget work, if we can't borrow simply to roll over existing debt, then must we raise taxes? On an severely declining economic base to fund increasingly expensive unemployment benefits? Will not the taxes drive the economy further down?

Raise interest rates as occurred under Ronald Reagan and wring every drop of inflation out of the system? Perhaps that is the only solution, but one that is painful indeed and one that the Democrats will demagogue to our discomfort. The economy will suffer massively perhaps it will run out of control on the downside.

Every choice is pain vs. pain.

[babble-on]

Excess savings is the amount by which savings rose over a baseline as a result of the pandemic and the fiscal policy interventions in 2020 and 2021. (Unemployment benefit boosts, PPP, stimulus checks, refundable child tax credit, muni government bailout, etc.) Added to that, behavioral changes in the pandemic increased household savings because there were fewer leisure and entertainment expenditures (vacations, restaurants, movies) The numbers were enormous, and some economists draw a line from that to the lack of available workers. Why work delivering pizzas on Sundays when you still have 5000 in the bank from last year.

[EBH]

All very succinctly expressed.

Honestly, I think this is the very reason Biden is pushing for a war against Russia. One that will undo the entire world order.

[libertasbella]

Remember: You’re the carbon they’re trying to reduce.

[LastDayz]

Yep..... that was my point.

If you’ve accumulated wealth, whether cash, hard assets, etc., who’s to say it’s excess as it’s really nobody’s business. Sounds like some don’t want others to have anything to fall back on when times get tough. A storm like no other is coming so prepare accordingly.

[EBH]

but at the article points out, that money in their savings is going to dwindle down. If they are choosing to not work eventually they will need to come back to work. Employers are wising up a bit, now that we have gone through ‘the great resignation’ period.

There are 3 kinds of folks in these circumstances, the first is the one who chooses not to work, the second is the one who invested in finding a better job or education for a better job, the third is those who chose to become self-employed. Which when is come to personal economics all looks good on paper.

But...on the macroeconomic scale all three of those positions currently are high risk scenarios. All three are depending on the oligarchs to be able to make the right moves.

And as history tells us, that has never happened yet.

[EBH]

A report I saw this morning has that rate as high at 56%!

With all the money floating around, where is it all if no one is saving it?

56% of Americans can’t cover a $1,000 emergency expense with savings
PUBLISHED WED, JAN 19 202212:21 PM ESTUPDATED WED, JAN 19 20229:42 PM EST
https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html

[babble-on]

Yes the money in savings will dwindle. In my opinion this excess savings is a bigger part of the “great resignation” than the media is saying. The economic media is mostly saying it is A. fear of covid and B. lack of childcare owing to school closures that is keeping women, especially, out of the workforce.

I opine that it’s also the fact that a lot of households have enough cash RIGHT NOW, that people have the choice NOT to go to kind of awful jobs, like cashier, warehouse worker, trucker, haircutter, busboy. That’s a big part of the inflation problem. Companies are paying up to get that staff, and needing to charge more for their products accordingly. Government spending led to inflation. But it SHOULD be transitory, because of what you point out. The people will run out of this cash, and have to go back to stocking shelves and canning dog food.

[moovova]

That’s just scary.

[EBH]

Not that it helps much, but you are not alone. Many of us have had to dip into savings, while ‘the others’ got government assistance.

[SamAdams76]

56% of Americans can’t cover a $1,000 emergency expense with savings

Again, that's not taking into account that somebody with less than $1,000 in a savings account may have many times more than that in home equity, 401k savings or available credit.

Since becoming an empty nester, I've managed to put just over 6 months of living expenses into my savings account but when the children were living with me and expenses were high, I still had plenty to draw upon when I had an emergency expense such as a major car repair, a new roof for my house, or a busted water heater. I could put it on my credit card (and pay it down quickly), take out a home equity loan or take out a 401k loan. None of those options were ideal but I never had to really worry that much about emergency expenses as I had options.

Now there are some who truly have no safety net with an emergency expense but it is far less than 56% of the people.

[Romans Nine]

“choice NOT to go to kind of awful jobs, like cashier, warehouse worker, trucker, haircutter, busboy.”

Wow that’s quite the condescending list…….

Let me guess, college educated white collar with a libertarian bent?

[EBH]

The article excluded those considerations from consideration. A $1000 emergency expense is not what those savings vehicles are for.

[PeterPrinciple]

There is no solution to this economic crisis about to befall us that is a vote winner.

---

That is the good news. Let’s trust the Invisible Hand.

[babble-on]

Well you tell me why those are the jobs that cannot be filled at the moment. Are there segments of the population that grow up dreaming of delivering pizzas? or is it something that people do only because they need the money. I’ve been a busboy. It wasn’t super-fun.

[fatboy]

You make some very good points.

Another thing to consider is so many young people have federal student loans with very high balances and they have not been making any payments on these since March 2020. I have read that the percentage of borrowers that have continued making payments is about 10% which means obviously 90% are not making payments. This has freed up personal income for those individuals to pay off other debt. And as old habits are hard to break when May 1st rolls around and with it demands to start paying back this debt, look for the democrats to place the carrot of loan forgiveness back into the faces of student loan borrowers. In short, there goes the rest of any excess savings.

The Obama administration instituted a policy called capitalization into federal student loans which adds interest accumulated while the student is in school and during the 9 month grace period after leaving school, that interest is added to the principal. The government could reverse that practice and just charge borrowers based on their principal amount for far less tax payer money but that would take the issue away from the democrats in future elections and they have no intention of doing that.

My prediction: congress and the administration will keep things as they are and make this an issue for the 2022 and 2024 election.