Drawing Down Savings to Pay for Growth Can’t Last Forever

The personal savings rate is suddenly under scrutiny. On Friday the Washington Post ran a piece calling it a “red flag” in the middle of otherwise good economic news. Today the Wall Street Journal reported on the latest numbers from the Commerce Department, noting that savings have fallen to their lowest rate in more than a decade.

There are various ways of looking at this. Here’s one:

After the Great Recession, the savings rate stayed steady because households were paying off debt primarily by reining in spending. This was not great for the economy, but it was good for personal finances. Between 2010 and the end of 2015, the difference between debt and savings improved from -6 percent to -4 percent.

That changed two years ago. Since the beginning of 2016, savings have plummeted, but this money is not being used to pay off debt, which has stayed about the same. It’s being used to buy stuff. The difference between debt and savings has fallen from -4 percent to -8 percent.

This is obviously not sustainable. When savings start to run out, households can keep up their spending for a while by maxing out their credit cards. Eventually, though, they have no choice but to cut back on consumption, something that will almost certainly stall the economy when it happens. Before long, that stall will turn into a recession.

There are actually lots of red flags in the economy right now. My guess—which is worth what you paid for it—is that the US economy will continue to hum along in 2018, buoyed by the Republican tax cut and the economic recovery in the rest of the world. But I suspect it doesn’t have much longer than that. Right now, I imagine that Republicans are holding their collective breath, praying for the economy to crash precisely in November, after it can’t affect the midterm elections, and then recover precisely a year later, when the 2020 elections start to approach. They might get their wish.

WE'LL BE BLUNT:

We need to start raising significantly more in donations from our online community of readers, especially from those who read Mother Jones regularly but have never decided to pitch in because you figured others always will. We also need long-time and new donors, everyone, to keep showing up for us.

In "It's Not a Crisis. This Is the New Normal," we explain, as matter-of-factly as we can, what exactly our finances look like, how brutal it is to sustain quality journalism right now, what makes Mother Jones different than most of the news out there, and why support from readers is the only thing that keeps us going. Despite the challenges, we're optimistic we can increase the share of online readers who decide to donate—starting with hitting an ambitious $300,000 goal in just three weeks to make sure we can finish our fiscal year break-even in the coming months.

Please learn more about how Mother Jones works and our 47-year history of doing nonprofit journalism that you don't find elsewhere—and help us do it with a donation if you can. We've already cut expenses and hitting our online goal is critical right now.

payment methods

WE'LL BE BLUNT

We need to start raising significantly more in donations from our online community of readers, especially from those who read Mother Jones regularly but have never decided to pitch in because you figured others always will. We also need long-time and new donors, everyone, to keep showing up for us.

In "It's Not a Crisis. This Is the New Normal," we explain, as matter-of-factly as we can, what exactly our finances look like, how brutal it is to sustain quality journalism right now, what makes Mother Jones different than most of the news out there, and why support from readers is the only thing that keeps us going. Despite the challenges, we're optimistic we can increase the share of online readers who decide to donate—starting with hitting an ambitious $300,000 goal in just three weeks to make sure we can finish our fiscal year break-even in the coming months.

Please learn more about how Mother Jones works and our 47-year history of doing nonprofit journalism that you don't elsewhere—and help us do it with a donation if you can. We've already cut expenses and hitting our online goal is critical right now.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate