The Savings Rate Conundrum

Tyler Durden's picture

Authored by Lance Roberts via,

The economy is booming.

Employment is at decade lows.

Unemployment claims are at the lowest levels in 40-years.

The stock market is at record highs and climbing.

Consumers are more confident than they have been in a decade.

Wages are finally showing signs of growth.

What’s not to love?

I just have one question. If things are so good, then why is America’s saving rate posting such a sharp decline?

The answer is not surprising. Despite the bullish economic optics, the reality for the majority of Americans is they simply have not yet recovered from the financial crisis. As the chart below shows, while savings spiked during the financial crisis, the rising cost of living for the bottom 80% has outpaced the median level of “disposable income” for that same group. As a consequence, the inability to “save” has continued.

I discussed previously the problem of rising debt. Beginning in 1990, the gap between the “standard of living” and real disposable incomes went negative with the resultant “gap” filled through the use of debt. However, since the financial crisis, this has no longer been the case. I modified the previous chart with the savings rate which tells the same story, as the cost of living began outpacing incomes the difference came from savings, and a continuous increase in debt. Again, despite the temporary uptick in the savings rate following the financial crisis, the real cost of living continues to erode the middle class.

You can see the erosion of the savings rate more clearly when you look at the rate of Personal Consumption Expenditure (PCE) growth as compared to debt growth. As spending and debt accelerated, the savings rate declined. More importantly, in 2000 the growth rate of debt sharply accelerated above PCE growth. This debt-fueled consumption, however, has not led to stronger rates of economic growth. 

Debt is a negative thing for the borrower. It has been known to be such a thing even in biblical times as quoted in Proverbs 22:7:

“The borrower is the slave to the lender.”

Debt acts as a “cancer” on an individual’s wealth as it siphons potential savings from income as those funds are diverted to debt service. Rising levels of debt means rising levels of debt service which reduces actual disposable personal incomes that could be saved or reinvested back into the economy.

The mirage of consumer wealth has been a function of surging debt levels. “Wealth” is not borrowed but “saved” and as shown in the chart below, this is a lesson that too few individuals have learned.

The reality is that since “savings” are the cornerstone of economic growth longer-term, as savings provide for productive investment and lending, it should be of NO surprise that, as shown in the next chart, there is a very high correlation between the savings rate, GDP, and PCE.

While many continue to suggest that “debt is not a problem,” the evidence is pretty clear that rising debt levels have impeded economic growth, savings, and consumption since slanting sharply upwards beginning in 1980.

Correlation or causation? You decide.

The chart above is extremely noisy so I have created a composite index below of inflation (CPI), GDP, Wages and the Savings Rate. I then compared that composite index to both interest rates and the S&P 500.

What you find, unsurprisingly, is that declines in the composite index also correspond with declines in both rates and equity prices. The most recent decline resulted in the near 20% sell-off in late 2015 and early 2016. The recent uptick in equities and the index follow on the heels of both the massive European and Swiss National Bank’s buying sprees and the “Trump bounce.”

The fall in the savings rate, combined with the subsequent rise in debt, is suggesting there is more weakness within the economy that headline data would suggest.

Currently, there are clear signs of stress emerging from credit. Commercial lending has taken a sharp dive as delinquencies have risen. These are both signs of a late stage economic expansion and a weakening environment. With savings rates weak, the real-world inflationary pressures of food, energy, medical and utilities have consumed more of discretionary incomes. This is why dependency on social support systems now comprise a record level of disposable incomes.

“Without government largesse, many individuals would literally be living on the street. The chart above shows all the government ‘welfare’ programs and current levels to date. The black line represents the sum of the underlying sub-components.  While unemployment insurance has tapered off after its sharp rise post the financial crisis, social security, Medicaid, Veterans’ benefits and other social benefits have continued to rise.


Importantly, for the average person, these social benefits are critical to their survival as they make up more than 22% of real disposable personal incomes. With 1/5 of incomes dependent on government transfers, it is not surprising that the economy continues to struggle as recycled tax dollars used for consumption purposes have virtually no impact on the overall economy.”

It is hard to make the claim the economy is on the verge of acceleration with the underlying dynamics of savings and debt suggesting a more dire backdrop.

With the average American still living well beyond their means, the reality is that economic growth will remain mired at lower levels as savings continue to be diverted from productive investment into debt service. Furthermore, with the Federal Reserve and the Administration actively engaged in creating an artificial housing recovery, and wealth effect from increasing asset prices, it is likely that another bubble is being created.

This has never ended well.

The concern is that without a reversion of debt to more sustainable levels the attainment of stronger, and more importantly, self-sustaining economic growth could be far more elusive than currently imagined.

This isn’t just about the “baby boomers,” either. Millennials are haunted by the same problems, with 40%-ish unemployed, or underemployed, and living back home with parents. In turn, parents are now part of the “sandwich generation” that are caught between taking care of kids and elderly parents. The rise in medical costs and health care goes unabated consuming more of their incomes.

As I stated previously:

“Hopefully, the recent upticks in the economic data are more than just the temporary “restocking cycles” we have seen repeatedly over the last 8-years. Hopefully, the current Administration will achieve some part of their legislative agenda to help boost economic growth. Hopefully, international economies can continue their growth trends as they account for 40% of corporate profits. Hopefully, an economic cycle that is already the 3rd longest in history with the lowest annual growth rate, can continue indefinitely into the future.”

But that is still an awful lot of hoping.

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VWAndy's picture

 Savings in cash in a bank? Thats just crazy talk yall!

Number 9's picture

i get 5% on $500 at my credit union..
after that it is like .012506445..or sum such shit

aliens is here's picture

5%? My credit union only offers me 1%.

Number 9's picture

but only on 500 bux.. so the rest just sits there in limbo getting torn asunder by inflation

Arnold's picture

My wife saves over 50% when she shops at Penney's.

847328_3527's picture

Why save?


"The more you spend, the more you save."


TBT or not TBT's picture

The media and schools have hammered into them that spending is good for the economy.   Same sort of message incidentally a diabolical figure would whisper to the tragic figure it in a traditional story.  The media.and academia and the left also say do what feels good.  So embrace your freak.   Diversity is double plus good.  Traditional prudence is out the window.  Square. 

pods's picture

Your post reminded me of the collusive news reports about buying shit for yourself for christmas.

"Go ahead, treat yourself."

One big fat Matrix and we're all stuck inside.


yogibear's picture

Central Banksters love debt slaves.

Dogman57's picture

Bank?  I keep mine cash in a tin can buried in the backyard.

VWAndy's picture

 I been converting my meager spare coin into tools. The one asset liberals are alergic too.

silverserfer's picture

 show em PM's.. and they'll start smoking out their ears.

BandGap's picture

Same here, along with my other assets.

0% interest but 100% available any time I pick up a shovel.

aliens is here's picture

I am living below my means that's all I care about. If my neighbors goes bankrupt because they over spend then I'll laugh at them.

ToSoft4Truth's picture

The problem is when they get bailed out.


Say you save up 100K and GM goes tits up.  You plan on buying a factory for your 100K.  Then someone like Bush bails them out.  Not only did you get screwed out of a factory that is rightfully yours, the buying power of your 100K is diluted while your fellow countrypeeps cheer your financial doom.  "It's for the jobs..." 


Bring back Debtor's Prisons. 

Osmium's picture

"It takes a big man to cry.  It takes an even bigger man to laugh at that man"

~ Deep Thoughts By Jack Handy

Number 9's picture

you wont be laughing when they start eating your pets.

BandGap's picture

I will be laughing all the way to the bank, buddy.

Who knew a doberman could feed 4 people?

broke-but-hopeful's picture

I sort of agree.  Every person or family has to think of their own survival or future themselves, don't expect others or government to bail them out.  We lived at or below our means, especially in the early years while having and raising the kids.  We didn't have rich relatives to help so my wife and I both worked.  Even then we participated in 401k or deferred income savings plans.  We put in money as saving with pre-tax money was a big break.  Doing that out whole work life has paid off now that we are retired.  We never lived high and now retirement and grandkids is the sweet life!

aliens is here's picture

Good for you. That's where I hope to be someday. :)

CJgipper's picture

And the key?  Living, working, and saving at a time when cost of living was far below incomes, unlike today.

TeethVillage88s's picture

But of course they "Punish you" if you are Fixed Income, Infirm, Elderly, or a Saver.

- Planned Inflation
- Deflation of the Future Value of the USD
- Poor Stewardship of WRC

All of this attacks Charities, Social Security, Pensions, Affordable Health Care unicorn, Affordable Tuition Unicorn, Social Contract Unicorn, Caring for the Minorities Unicorn

Vilfredo Pareto's picture

Lol.  I am living in a free fixer upper.  It needs some work but loving it.  


I want my freedom back someday from debt peonage.

Bryan's picture

Graphs and charts and graphs and analysis and graphs and explanations and blah blah blah.  None of it really explains what's going on under the hood.

ffed's picture

LIES EVERYWHERE.  "THEY"  control ALL the MEDIA!  including billboards which I used to use extensively in my famlies business, WELL now they DON'T want my MONEY at Interstate Billboard and at Out Door Media   SCUMBAGS !!!!  THERE IS NO FREE SPEECH here, they control EVERYTHING, WAKE the FUCK UP!!!!!!!!!!!!!!!!!!!!!!!!!!!!

ToSoft4Truth's picture

One widow's "funds (are) diverted to debt service" is another widow's income stream.  

how_this_stuff_works's picture

How else do you think they're paying for health insurance premiums? Out of their increased wages?

(Do I need to add the sarc tag?)

ted41776's picture

must be nice to get free money from the "federal" "reserve" so you can loan it out at 30% interest on top of charging all the fees

earleflorida's picture

at a 'fractional' price mid you

TeethVillage88s's picture

But, But... they Hypothicate, Rehypothicate in London,... they leverage 1:40 as of 2008.

How could measly 9 Trillion create the behemoth of the USA Markets?

Total Savings Deposits at all Depository Institutions (WSAVNS)
9,192.4 Billions of Dollars, Not Seasonally Adjusted, Oct 26, 2017

- $2-4 Quadrillion USD Denominated Derivatives
- $700 Trillion Systemically Important Derivatives
- $15 Trillion MZM Money Supply, MZM Broadest Measure?

- $75 Trillion in Current Debt & Liabilities
- $20 Trillion in Federal Debt
- $4 Trillion Annual Federal Budget
- $1 Trillion a year for MIC, DHS
- $1.5 Trillion for Medicare & Medicaid
- $1 Trillion a year for Social Security
- $40 Trillion in Stocks/Equities
- $4.7 trillion in US 401(k) plans
- $80 Trillion in Bond Market
- $70 Billion a year in Welfare
- 41 Million people on Welfare
- 100 Million US People not working
- 8 Million Elderly on Adult Care Welfare/SSI
- Pension Problems... $1 Trillion?
- Bankrupt cities and states, PR, IL, Chicago, Detroit, Hartford
- So we are becoming a PIIGS type country which will sell our own birth right to the Banks eventually

Negative - 780 Billion Trade Balance

Lance, BABY!

How could Savings actually Create the US Markets? Doesn't make Sense!

earleflorida's picture

you sir, always post great stuff with empirical meanings and source links

i salute you for your effort, time and conscious



silverserfer's picture

becasue thats 9 trilion jewbux. not fractional, its based on serfs signing up for the loan for usuary debit. Its our labor they want, shackled with inetrest.

TeethVillage88s's picture

Usury, Taxes, and Planned Inflation... of and they want part of your social security, pension, 401K, and if you get divorced, or if you have a death in the family.

TeethVillage88s's picture

And they want you to pay for Utilities at your home or apartment or structure you own... Waste & Trash Removal, Sewer, Water, Electric, Gas, Telephone of some sort... fines.

silverserfer's picture

i dont mind paying for those services so much, but if you look at all the hidden taxes that are baked into the prices you pay for those services... you start to see that REAL tax rate for many is around 80% of their income. 

earleflorida's picture

excellent read

loved the graphs

tied it all togeter nicely for the lay person


LawsofPhysics's picture

ZIRP and NIRP!!!!!!!!!!!!!!!!!!!!!!  Why the fuck would you open a saving account?!?!?

silverserfer's picture

it kills me how easy it is for people to still be able to save money by buying PM's. It really is the only way to be free. Yes so few do. 

And its not becasue Im hoping for the price to go up. Im happy with the price staying consistant. That is called saving without the expectation of gains. Just preservation of money earned thru labor.

Number 9's picture

pms is freedom? then why the fvk do i have to have 5 Mexicans hired to drag this shit from point a to b?

silverserfer's picture

sounds like a nice problem to have. You should then know about G to S ratio and timing of trading up for gold. 

Number 9's picture

dont even get me started on the ammo supply, the tons of beans rice and dried food, the firewood and seeds and that fvkin berkey filter.

Number 9's picture

oh and the g to s ratio trading is akin to watching snail slime dry in the has been holding between 70 and 80 for foreveh ,, i suppose i can make a big deal in maybe 80 more fvkin years

silverserfer's picture

I think you will get a good oprrotunity in 10 years or so. Silver to platinum isint too bad right now. 

Number 9's picture

but you want to know what your perceived freedom really is?
it is anchors..
i cant do what i want, go where i want, and just say fvkit and live in a tree in the woods b/c i spent my entire life enslaving myself to material possessions.
so, now it is to the point if i just give it all away or throw it in the dump etc is an acknowledgement that i was wrong and fooled by that fvkin alex jones.

tion's picture

Many rural localities with lots of open acreage check for new/unpermitted buildings via satellite, usually over 100 sq ft or so has to be permitted.  

But you could in theory build under a dense grove of evergreens not visible from the road.  I want try my hand at building an expandable dirt/cobb camp this summer, seems like it could be a lot of fun :)

Vilfredo Pareto's picture

Many counties in Arkansas still have no construction codes in rural areas.  Stone county comes to mind as one if I recall.

tion's picture

I've still never made it down to that region, I hope to do an extended road trip in the not too distant future :)

Number 9's picture

i have a bugout location all set aside in a mountain range accessible by only one road with a gate and i have the key,,
tons of deer, moose elk and even those fvkin grizzly bears but if shit really goes south it is 2 hours away.. going hunting there the 10th..