how should higher personal savings rate in the US be correctly understood?

[jj2282]

Hi ITulipers,

I'm having difficulty grasping the higher personal savings rate in the US widely reported in the mainstream media.

EJ once commented in his "Road to Ruin: Final Stretch" that "Incomes fall during economic contractions generally as debt repayment rises, creating a statistical increase in saving because debt repayment is reported as saving. But in a post-bubble world it is not the kind of saving that winds up in bank accounts to be spent later in consumption. What we are seeing today that looks like saving for future consumption is in fact the debt left over from the FIRE Economy sucking the life out of the US economy."

I looked up the two calculations of Personal Savings Rate in the FFAs and NIPAs, but am still unclear why debt repayment is reported as savings?

Can someone shed light on this or help me understand this?

Many thanks!

[Chomsky]

Re: how should higher personal savings rate in the US be correctly understood?

Hi ITulipers,

I'm having difficulty grasping the higher personal savings rate in the US widely reported in the mainstream media.

EJ once commented in his "Road to Ruin: Final Stretch" that "Incomes fall during economic contractions generally as debt repayment rises, creating a statistical increase in saving because debt repayment is reported as saving. But in a post-bubble world it is not the kind of saving that winds up in bank accounts to be spent later in consumption. What we are seeing today that looks like saving for future consumption is in fact the debt left over from the FIRE Economy sucking the life out of the US economy."

I looked up the two calculations of Personal Savings Rate in the FFAs and NIPAs, but am still unclear why debt repayment is reported as savings?

Can someone shed light on this or help me understand this?

Many thanks!

I believe it is because in their view, saving = (not spending).

Debt repayment is not considered "spending".

[swgprop]

Re: how should higher personal savings rate in the US be correctly understood?

Hi ITulipers,
I'm having difficulty grasping the higher personal savings rate in the US widely reported in the mainstream media. . .

CR had a post just last night that addresses this issue quite nicely:

Personal Saving and Mortgage Equity Withdrawal

[don]

Re: how should higher personal savings rate in the US be correctly understood?

As everyone on iTulip knows, access to open-ended personal debt was the critical support for flat or falling wages and salaries. Now that that support is being pulled away there's a mad scramble for survival on what assets remain; wages, salary, lines of credit still available, whatever equity remains in housing and 401ks, etc. That's called saving in a FIRE storm ;)