Savings Just Getting Started

The personal savings rate increased to 7% in May. I believe it will rise much further because the U.S. must replace the depleted savings of the past 16 years. I found personal savings rates at the Bureau of Economic Analysis. There are two savings rates compiled, one from National Income and Product Accounts (NIPAs)and one from Flow of Funds Accounts (FFAs). They differ slightly, but the trends are the same. The savings rate was relatively steady between 1952 and 1992, but then quickly began to drop. I treated 1952-1992 as the "natural" savings rate, and 1993-2008 as the "bubble" rate. The average savings rate from 1952 to 1992 was 8.7%, and 2.7% from 1993 to 2008. Assuming the 40-year savings rate was the natural rate, I created the chart below to show the annual difference from the natural rate. Notice that the savings rate increased during the 1970s and 1980s recessions, just as it is increasing now. The question I have is whether Americans must "make up" the lost savings of the past 16 years. If so, the savings rate could be headed to 60-year highs. This is worrisome for any business dependent on the American consumer.
Here's an article using Eliot Wave analysis of the savings rate. It uses a different data set, but reaches the same conclusion.
The Bull Market in Savings as Cash has Been King for 10 Years
It's somewhat amazing that cash is not capturing anyone's fancy because a tremendous society-wide thirst for cash is spreading fast. "In a deflation," the Elliott Wave Financial Forecast has stated, "Rule No. 1 is to unload everything that isn't nailed down. Rule No. 2 is to sell whatever everything remaining is nailed to." The banking system is surely deflating, because, echoing Elliott Wave Financial Forecast's wording again, "Desperate American Banks Are Selling Everything That Isn't Nailed Down." SunTrust is selling its stock in Coca-Cola, an asset the bank held for 90 years. Merrill Lynch sold its founding stake in Bloomberg as well as various other subsidiaries.

Meanwhile, "Americans are selling prized possessions online and at flea markets at alarming rates." Pawnshops and auction sites are booming. At Craigslist.org, the number of for-sale listings soared 70% in eight months. This fits with our review of Craigslist's prospects when it was getting started in 2005: "This is just the set-up phase. Once the global garage sale really gets rolling, truly astounding volumes of dirt-cheap goods will be available on-line and elsewhere." The global garage sale is on. The chart of the U.S. savings rate shows that the bull market in cash has come to life.

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