Investing Blog

The Great Recession has had such an impact on people’s lives that since 2007 the American savings rate has now doubled, and some analysts predict that they could nearly triple again, setting the stage for a full blown capital-fueled recovery.

Three Percent

The personal savings rate now stands at 3% as people cut back to make ends meet and to keep an extra cushion in case unemployment strikes. Three-percent is a true victory in American personal finance. Through the 80s, 90s, and well through the 2000s, the American savings rate was treading 0. The two decade asset bubble, where virtually every commodity/standardized product was inflated, pushed people to buy more and to buy it on credit.

Short term hurt, Long term payoff

The US economy is largely dependent on consumer spending to fuel economic progress. In the short term, an additional 1.5% of America’s paycheck is going to the bank, and staying there, creating a 1% drop in GDP. This 1% change could grow to -2 or -3% as American’s begin saving more to catch up on their depleted savings. The net effect in the short term would appear sour, however, the economy would be better poised for long term economic growth as the capital, not credit, is there to finance development.

Sorry, Your Savings Won’t Earn Anything

Unfortunately savers are a little too late to the party. After the Federal Reserve sliced rates, savings rates plummeted to record lows. Fixed income investors are also feeling the pinch with most CDs paying 1/4-1/3 of what they were last year. Though an increase in interest rates is certain to happen as the Fed tightens its grip on monetary policy, higher rates are still a long way off if the American populace decides its better to save than to borrow.

If nothing else, save for retirement because you get a tax credit.

Economy