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US Savings Rate 1981-2011

The Personal Income and Outlays report for April 2011 came out today. The headline number was an increase of 0.4% in personal income. The personal savings rate came in at 4.9%, the lowest since October 2008 before the Lehman crisis caused savings rates to jump up.  Below are a few charts for a historical perspective.

Also see “How To Reduce Government Budget Deficits”, where I write:

if you look at my thinking on the sectoral financial balances, you can see you have a problem. The jobs are really not coming yet as this morning’s employment situation summary demonstrates. The private sector is back to its default savings. And the U.S. is still the world’s reserve currency. So the capital account surpluses continue. That necessarily means continued high government deficits – deficits that I think are politically unsustainable, meaning they will come under attack.

What are potential ways out of this?

  1. A reduction in the capital account surpluses. Obviously, a Chinese revaluation might help here because what would really end the capital account surpluses is a major devaluation in the dollar vis-a-vis its trading partners. Now, this is a de facto decrease in American per capita income but it will bring down capital account surpluses. Obviously, if central banks stopped accumulating dollars and switched to euros or yuan or yen, that would also help.
  2. A reduction in private sector surpluses. This could happen via the household or business sector. If we had a capital spending binge, then business savings would go down. If households starting seeing job growth and started to reduce savings levels due to the psychological effect’s from increased economic security, then this could reduce the private sector surplus. But given high household debt levels, this would be a bad thing.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.