The long decline of the savings rate in the United States has been widely discussed, yet every revisit of the data brings new cause for alarm. Hedgeye recently provided its clients a chart showing savings as a percentage of GDP. In the 1970s and 1980s savings were in the 5 - 7% range. In the decades since, personal savings have declined to the 1 - 3% range.
Many pundits suggest the decline in savings is a non-issue, while others, more on the extreme, believe that it one of the primary economic issues currently facing the United States. While the implications can be debated, the fact remains that the savings rate has declined dramatically over the past few decades and is among the lowest of any modern nation state.
Personal saving is very important to the economy. During the last economic depression, many people suffered a lot because they didn't have enough personal saving. After that, they realized how important to save money. Personal saving may be ignored when economy is good, but when there is depression, the importance will occur.
ReplyDeleteI believe it's obvious that due to the recent dive of interest rates and the crash of the housing market (which seems to be the one of the major starters of the recession) that has caused personal savings to decline, because people have on incentive to save when the interest gained is very little.
ReplyDeleteI agree with Yan. The personal savings help stimulate investment as it increases the supply of loanable funds in the economy. Even though currently the demand for these funds is so very little, it is encouraging to know the funds are available for those who are more willing and determined to invest in a good business project, which can eventually stir up employment too. And in a recession, the personal savings of consumers is what will keep them from becoming homeless and sinking into poverty. However, people are now hoarding cash as they are afraid to spend and hoping its value will increase in the future. Tax cuts for entrepreneurs and other incentives must be provided as a stimulus. The low interest rates should help encourage investment once again.
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