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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Surging U.S. Savings Rate Reduces Dependence on China

Posted by WARREN MOSLER on June 29th, 2009


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This gets more ridiculous by the hour.
The dependence on China already was zero.

And, as in my previous post, the high savings rate of the non government sector
comes dollar for dollar from the deficit and is not necessarily indicative of
low spending.

If it were, that would imply there is no inflation risk to deficit spending on the grounds that it all gets added to savings.

So once again one of our opinion leaders is making a statement that supports the opposite of what he thinks it supports.

Federal deficit spending is clearly adding to incomes, savings, and spending.

As it always does.

Surging U.S. Savings Rate Reduces Dependence on China

by Rich Miller and Alison Sider

June 26th (Bloomberg) — Saks Fifth Avenue is cutting orders 20 percent after postinglosses in the last four quarters. Kia Harris says some customers at the Washington shoe store where she works are buying one pair rather than three.

Incomes and spending were up in yesterday’s report.

In the recession following a borrowing binge that sent consumer debt to the highest level ever, Americans are shutting their wallets and building their nest eggs at the fastest pace in 15 years.

Non government savings and income is ‘funded’ by federal deficit spending — to the penny

While the trend will put the country’s finances in better balance and reduce its dependence on Chinese investment,

Dependence on Chinese investment remains at zero where it’s always been.

it may also restrain economic growth in 2010 and beyond,

No, in fact the higher income and savings added by the federal deficit tends to expand aggregate demand and real economic growth.

said Lyle Gramley, a senior economic adviser with New York-based Soleil Securities Corp. and a former Federal Reserve governor.

Who would have thought???…

“There’s been a fundamental change in people’s behavior,” he said. “It will affect the economy for years.”

Government data today showed that the household savings rate rose to 6.9 percent in May, the highest since December 1993, as personal spending increased less than incomes. The rate in April 2008 was zero.

1993 was also a year of very high federal deficit spending.

This stuff is not that hard…


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5 Responses to “Surging U.S. Savings Rate Reduces Dependence on China”

  1. Homer Hoyt Says:

    Why not deficit spend infinite levels of money forever? Keynes said to bury jars of money in the ground and then dig them back up, ad infinum. Why not do this? Instead of money though, lets bury jars of no limit debit cards. Instead of jars though, lets just mail them out to every person on the planet. I want to go to the store and purchase everything in the aisles, why restrain my spending? Why should some crony connected crook in washington get to decide my demand levels?

    Reply

  2. Curious Says:

    “Dependence on Chinese investment remains at zero where it’s always been.”

    Theoretically, what would happen, if the Chinese stopped investing?

    Perhaps the interest rates would go up. If so, perhaps the fed would then intervene. Extreme scenario – the fed would buy all the treasuries, so there would be no government debt (= no long term risk free rate).

    Am I looking at it right? If so, what would be the effects of that?

    Reply

  3. Warren Mosler Says:

    yes.

    and china buys very few if any longer term tsy secs. i doubt rates would move by more than a few basis points apart from an initial jump if they did it all at once.

    tsy rates are a function of anticipated fed rate settings plus or minus technicals which effect longer term secs a lot more than short term secs

    Reply

  4. Matt Says:

    Warren I would love to see a chart showing personal/household savings rate compared to the federal deficit over the past 50 years.

    Reply

  5. warren mosler Says:

    http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=120&Freq=Qtr&FirstYear=2007&LastYear=2009

    interesting page sent to me.

    but check levy.org as wynne godley did that series if i recall correctly

    Reply

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