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.

$500,000 MATCHING GIFT

In 2014, before Donald Trump announced his run for president, we knew we had to do something different to address the fundamental challenge facing journalism: how hard-hitting reporting that can hold the powerful accountable can survive as the bottom falls out of the news business.

Being a nonprofit, we started planning The Moment for Mother Jones: A special campaign to raise $25 million for key investments to make Mother Jones the strongest watchdog it can be. Five years later, readers have stepped up and contributed an astonishing $23 million in gifts and future pledges. This is an incredible statement from the Mother Jones community in the face of the huge threats—both economic and political—against the free press.

Read more about The Moment and see what we've been able to accomplish thanks to readers' incredible generosity so far, and please join them today. Your gift will be matched dollar for dollar, up to $500,000 total, during this critical moment for journalism.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight 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

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.