I’ve written several times about how the personal savings rate in the U.S. has increased significantly since the beginning of the recession. From a historical perspective, that’s not terribly surprising: when people are worried about the economy, they get a little more prudent with their wallets. But that’s just personal savings, which is only a portion of overall savings in the U.S. It doesn’t take into account total net U.S. savings, which would include corporate and government savings and borrowing. For that number, you find something much different.
Here’s a chart that tells the story, via Bloomberg’s chart of the day from yesterday:
The reason why you’re seeing this other savings statistic plummet is actually kind of obvious: the government has been forced to borrow a great deal of money in order to pay for the stimulus. According to the article accompanying the chart, the overall U.S. savings rate has plummeted to Depression-era levels. Specifically, the article says:
Deficit spending by the federal government reduced net savings at an annual rate of $1.33 trillion during last year’s third quarter. State and local government deficits widened the gap by another $14.9 billion. At the same time, personal and corporate savings increased by a record $983 billion.
This highlights an interesting problem with stimulus. The ramped up spending through borrowing that the government has done isn’t all stimulating the economy — individuals and corporations are saving a significant portion of that. While that’s sure to hamper the government’s efforts, it’s also a wholly rational psychological response on the part of consumers and businesses. Unfortunately, as this chart makes clear, most of the savings that those people and firms are doing will likely end up going towards higher taxes in the years to come in order to pay for all that stimulus spending by the government.
