There does seem to be a qualitative difference between the current savings and that of more prosperous times. Backing up: Beginning in the 1980s “savers” were split off into those who saved by putting money in debt instruments and those who went after equities. Those who bought equities were subtractions from the savings rate. For a time, a long time, those who went after stocks were the smart ones, and still prudent. The nostrum “stocks have never fallen in any seven-year period” was replaced in the 2000s with “housing never goes down.” Now we see a series of bubbles, each one larger than the previous, ratified by the central bank.

But the “saver,” one can argue, was never different in her belief that she was behaving responsibly and wisely. It is likely, even, that savings and investment of households increased over the period, as boomers neared retirement.

Ha.

Now the savers are back to basics. Their saving is a straightforward subtraction from spending, but is — as Steve Keen talks about — a bigger subtraction from spending plus borrowing, which is the full definition of effective demand, and so is a crushing blow to economic activity. The federal government’s discretionary and automatic stabilizers may provide a bottom, but in the current outlook will not get us out of the mess.

Simplistically put.

Yes. I see a connection. It occurs to me, though, that increased private
sector savings whether to pay down debt or hoard against uncertainty, have
a limit in the case of deep recessions, as people are forced to tap the
“rainy day fund.”

It’s irrelevant whether the savings is used to pay down debt or “hoard
against uncertainty”. Either way, it improves their personal balance sheets
and enhances the ability to service debt. It reflects a predisposition by
the private sector to hold more cash. The accounting offset to that is
either other countries running trade deficits with the US or (more likely)
higher government deficits to accommodate that private sector savings impulse.

While I don’t see a chart showing surpluses, I agree with the larger
point. In recent years, though, the private sector asset savings has been
basically transferred to the public sector (including the Fed) as a function of
backstopping bad instruments.

Yes?

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It is more the case that the government surpluses has constrained private
demand and incomes, forcing greater reliance on private debt. That’s the
causation.

I suspect also there is a certain amount of distressed credit growth.

Yes?

The chart shows the savings rate going up during recessions as well.
Perhaps along with unemployment. Yes, the savings and investments in stocks
were at one time advertised as good substitutes. The 401(k) was a sober,
reasoned way of preparing for retirement. The house was an asset that
couldn’t go down. Nostalgia….

But also note in the current situation that the savings rate is income
minus expenditures, so it includes paying down debt. Debt is enormously
larger today than it was even ten years, and especially twenty years ago.

That is true. Debt is significantly larger, but it’s largely private
sector debt. It’s cause and effect. When Government boasts that a $x billion
surplus (as the Democrats always proudly proclaim during the Clinton
period), this is tantamount to saying that non-government $ financial asset
savings recorded a decline of $x billion over the same period.
Thus if the Government is really believing it will achieve the surpluses
shown in the graph then they must be wanting the non-government $ financial
asset savings to decline by an equal amount. And that is exactly what
happened throughout the 1990s, as evidenced by the decline in the household
savings rate.

But also note in the current situation that the savings rate is income minus expenditures, so it includes paying down debt. Debt is enormously larger today than it was even ten years, and especially twenty years ago.