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.”

[EBH]

A very interesting look back and look ahead, for what we may be seeing as the Fed decides on raising rates and what that economic impact will be for millions of Americans.

I started out this morning looking for statistics regarding American's savings accounts. I found wildly varying statistics for the year 2021. Ranging from better savings rate to lower income households having less savings even with the stimulus packages.

I think, Talmon J. Smith put together some very good observations for heading into the first quarter of the year. But left some questions through which a truck could drive if we're looking for answers and predictions.

[rbg81]

I was always under the impression that most households (especially the bottom 50%) had no savings. While I am not in that situation, I know a fair number of people who are basically living off their credit cards.

It is hard to tell from this excerp if the NYT thinks burning through “excess savings” is a good or bad thing. I suspect that, in private, they think it is very good indeed. To them, anything that makes people feel more threatened and dependent on the Government is music to their ears.

[LastDayz]

Define excess savings.

[proxy_user]

The comments section is more interesting than the article. Everybody has a different experience, some made lots of money in life, some struggled.

[moovova]

"Only 44 Percent of Americans Can Afford A $1,000 Emergency Expense"

https://freerepublic.com/focus/f-news/4034544/posts

[mo]

“Excess savings”?!!!

What an interesting concept. Could create a whole new Fed.gov agency devoted to tracking and figuring out how to “liberate” those captive funds....

[nathanbedford]

Inflation, in a way the reverse side of savings, is likely to become the pivotal issue of the first half of this century.

If inflation runs out of control, which is a very real possibility, the whole of our politics, indeed the whole of our culture, can be destroyed. We need not look far to see the example of Venezuela or deep into history to see the example of the Weimar Republic to know that inflation will ravage any society. It certainly makes a mockery of savings. It topples governments or they survive only as tyrannies.

If the bubble that few doubt presently envelops us bursts, one of the reasons will probably be inflation. Indeed, the fact that inflation is growing and the market looks topsy indicates that the future might be now. Depending on the rate and extent of inflation, that future looks frighteningly dystopian. The future might have elements of the worst of both worlds and appear as stagflation or it might simply prove to be a good old-fashioned massive depression.

The consequences will be revolutionary, our economy will fracture, our class and race balance will break down, rule of law will stressed if not abandoned, our national defense will weaken catastrophically, our allies will turn their faces from us as they cut their own deals with China, a strongman, a demagogue might emerge. The whole rest of the history of this century could turn on inflation.

At some point this bubble will break and that will affect the fortunes of the Republican Party and the conservative movement depending, perhaps, on who is in power when it happens. Democrats are not likely to let a good crisis go to waste but Republicans are likely to dither-one need only compare Herbert Hoover to FDR. Between now and 2024, with the Republicans presumably in power in Congress, they will have much of the responsibility for recovery.

With Mike McConnell in charge, we will have less than inspiring leadership and few solutions other than tax cuts and more spending. After 2024, with hopefully Donald Trump or a staunch conservative in the White House, the whole responsibility will be on us. The politics of the rest of the century might well turn, as they did in the 20th century, on how that event coped with by the party in power.

There is no solution to this economic crisis about to befall us that is a vote winner. The FDR solution, which was no solution at all, was a vote winner. Every real solution is a choice for pain now vs. a choice for more pain later. That is a sale Republicans are not good at closing but one that Democrats will never attempt.

[BiglyCommentary]

To me the only semi reasonable definition would be savings over and above x number of months of current essential overhead.

[1Old Pro]

To me the only semi reasonable definition would be savings over and above x number of months of current essential overhead.

Yep 3-6 months is the typical guideline.

[SteveH]

> Define excess savings.

https://economics.td.com/us-excess-savings

[Shadow44]

The unemployment checks were allowing people to pay off their credit card debt, a lot of people were using the money to set their finances straight and even accrue savings. The average debt load held by Americans dropped significantly during that period.

I know multiple people who used the fact that they were getting the extra money to become debt free.

[SamAdams76]

Define excess savings.

Exactly. Everybody defines that differently. That's why I take these alarmist articles with a grain of salt.

For example, one might have less than $1,000 in a savings account but also have $200,000+ in equity on their home, a million dollars in their 401k and fully paid off credit cards. Should that person be considered a hardship case and living paycheck to paycheck? Probably not but they tend to get lumped into surveys like this to make a problem seem bigger than it really is.

Now I don't recommend being in the situation described above. Taking out a home equity loan, an early withdrawal from a 401k, or running up credit cards to make ends meet is never an optimum strategy. But I would not consider those people poor. Just poor managers of money.

Many financial gurus will tell you to have 90 days worth of living expenses in the bank, easily accessible, so that you can cover unexpected expenses and have a cushion against a loss of income for a while. Personally, I try to keep at least six months of expenses in cash that is readily available without having to tap into your other assets or credit. That way if I suddenly lose my job, I don't have to panic. I can find another source of income or more likely, I can use my job loss as an opportunity to sell my home, pull up stakes, and move to a friendlier and less expensive part of the country (I live in the NYC metro area).

[Empire_of_Liberty]

Well written, but I think that there is a solution to this that is a vote winner.

It’s called “MAGA” and it actually won, last time.

[Old Grumpy]

I have dipped into my “savings” so often lately that they are practically non-existent now. If I have an emergency, I’ll be in trouble. Thank goodness I have halfway decent health insurance and drive an “economical” car. I’ve no choice but to hang in here and hope the jackass in the white house, and his miserable policies, will be replaced before I die.

[nathanbedford]

What tools do you propose the wielders of MAGA can wield to recover from massive inflation, stagflation, or depression? What tools do you think will be available?

[Mr. Jeeves]

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

Well, at least one major party no longer has to worry abut that. /s

I think an angry public has less recourse today to change its government than at any previous time in our history - so your prediction that inflation will lead to the current clique's survival as a tyranny appears to be already well under way.

[stuckinloozeeana]

Libs are moving to conservative states to dilute the vote. How can they afford it? $100 billion stolen from stimulus. https://www.cnbc.com/2021/12/21/criminals-have-stolen-nearly-100-billion-in-covid-relief-funds-secret-service.html

[Empire_of_Liberty]

I, in no way, pretend to be an economist, nor do I think that economists create any kind of economic growth, tools or not.

I simply remember America as a net oil exporter under Trump. I remember, when China unleashed its virus, thinking that the growth Trump was spurring in American productivity was the only thing that could carry us through this destructive waste.

I think that the prosperity Trump’s viewpoint offered was popular with Americans. A return to productivity is the only way I can see out of this mess. That’s all.

[BitWielder1]

How long before the commies go from "excess savings" to "excess lifespan"?
Their crazy Covid strategies tells me they're already there.

[rightwingcrazy]

“Calculating ‘excess savings’ is simple: they are the cumulative amount by which personal saving during the pandemic exceeded a counterfactual path without COVID-19.”

https://voxeu.org/article/us-excess-savings-are-not-excessive

It comes off as a way to blame the downstream damage the government caused by “excess spending” on the people that received the stimulus checks.