What the Jump in the U.S. Savings Rate Really Means

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http://counterpunch.com/


Debt Deflation Arrives


Happy-face media reporting of economic news is providing the usual upbeat spin on Friday’s debt-deflation statistics. The Commerce Department’s National Income and Product Accounts (NIPA) for May show that U.S. “savings” are now absorbing 6.9 percent of income.

I put the word “savings” in quotation marks because this 6.9 per cent is not what most people think of as savings. It is not money in the bank to draw out in rainy-day emergencies like losing one’s job, as thousands are every day. The statistic means that 6.9 per cent of national income is being earmarked to pay down debt – the highest savings rate in 15 years, up from actually negative rates (living on borrowed credit) just a few years ago. The only way in which these savings are “money in the bank” is that they are being paid by consumers to their banks and credit card companies.

Income paid to reduce debt is not available for spending on goods and services. It therefore shrinks the economy, aggravating the depression. So why is the jump in “saving” good news?

It certainly is a good idea for consumers to get out of debt. But the media are treating this diversion of income as if it were a sign of confidence that the recession may be ending and that Obama’s “stimulus” plan is working. The Wall Street Journal has reported that Social Security recipients of one-time government payments “seem unwilling to spend right away,” while The New York Times wrotethat“many people were putting that money away instead of spending it.” It is as if people can afford to save more.

The reality is that most consumers have little real choice but to pay. Unable to borrow more as banks cut back credit lines, their “choice” is either to pay their mortgage and credit card bill each month, or lose their homes and see their credit ratings slashed, pushing up penalty interest rates near 20 per cent To avoid this fate, families are shifting to cheaper and less nutritious food, eating out less or at fast food restaurants, and cutting back on vacation spending. So it seems contradictory to applaud these “savings” (that is, debt-repayment) statistics as an indication that the economy may emerge from depression in the next few months. While unemployment approaches the 10 per cent rate and new layoffs are being announced every week, isn’t the Obama administration taking a big risk in telling voters that its stimulus plan is working? What will people think this winter when markets continue to shrink? How thick is Obama’s Teflon?
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so paying a bill is 'saving'?

[uponit7771]

1. The U6 unemployment rate will hit 20-25% before end of next year. This will smack people in the face

...hard enough to wake them up to what really caused our current crisis and it aint Madoff or Stanford.

The fact that the media is counting paying back CC debt as "savings" is more double talk from them as they call a base line of 500k jobs lost a month as "green shoots" (actually it's been 600k but 500k kicks in multiplier effect).

Obama's stimulus plan will kick in fully by end of year...that's the only thing that'll keep the nation from going into a big recession....no wonder the US fed chief isn't worried about inflation...he doesn't have to...no one will have enough jobs to spend enough many to raise prices any higher.

[Warpy]

2. That's a truly bizarre definition of "savings."

I would imagine that in addition to trying to pay down their debt, people are squirreling away cash in their homes, cash they know they'll need if the job goes belly up.

Still, every dime that goes to retire a debt is a dime that increases net worth, getting it out of deeply negative numbers into reasonable negative numbers.

It's a stretch to call it "savings," though.

[Democrats_win]

3. No one should be surprised the Rush-Limbaugh style logic has invaded the M$M.

For some time they've categorized fast food as "manufacturing." We should not be surprised that the MSM uses this double speak nonsense because their main goal is to prop up a broken economic system. The communism for the rich.

[bridgit]

4. Whoa, whoa, whoa...it *was* money in someone's bank withdrawn on a rainy day...

in which it rained every subsequent day thereafter to this, all day, for months on end. Fucking Counterpunch...cyber-pamphleteering manifestos for revolutions without revolutionaries. It's gotta be a good gig stirring up DU every so often...

"Paying bills are NOT savings!!"

"How are paying my bills to be considered savings?" well...

It seems beyond dispute that a fair-to-good++ rating/standing with respect to any bills one owes is looked upon more creatively when it is current and in good stead. That will flow as a natural occurrence into offers & options that are capable of saving money both now and down the line. Easing credit unworthiness & overview maybe even, but that takes time and a continued effort to align some, if not all those forces that contribute to longer term planning.

It is in the longer term where savings are able to be identified. No, you pay your PG&E bill you haven't *saved* any m-o-n-e-y per se, not in that sense, not in the ways Counterpunch is able to understand them...saving money for me is a form of 'paying it forward'. By paying your bills & CC's forward especially they that contribute to your being warm & dry, to the extent you are able; you save yourself more than money

"From this perspective, the propensity to save out of wages and profits diverted the circular flow of payments between producers and consumers. The main cloud on the horizon, Keynesians worried, was that people would be so prosperous that they would not spend their money. Their prescription to deter this under-consumption was for economies to move in the direction of more leisure and more equitable income distribution." - I wonder how that's working out :):(

"Most financial savings are lent out, not plowed into tangible capital formation and industry. Most new investment in tangible capital goods and buildings comes from retained business earnings, not from savings that pass through financial intermediaries." a 'retained business earning' that's cute, I suppose it won't be considered a 'savings' till BofA gets their own pass-book acct