Sunday, 28 June 2015

U.S. Longer Term Saving Trend: Mad Money Outpaces Thrift on a Grand Scale

The U.S. Bureau of Economic Analysis (BEA) this week published the personal income and outlays statistics for May.

The numbers show that personal saving for the month increased just north of 3.8% on May last year while the 5.1% saving rate was unchanged on last year and that it remains dismal in a historical perspective.

The problem with a low saving rate is that the U.S. economy will struggle to produce economic growth without (I explain why here). Another great problem with economic policies in the U.S. as with an abundance of other countries in the world today, is that policy makers allegedly are trying to "manage" and fuel "economic growth" through monetary stimuli.

Visit the "Austrian" True Money Supply archive for the U.S. here.

This is a futile exercise. F.A. Hayek once explained why,
"...saving at a continuously high rate is an important safeguard of stability" and that a high rate of saving would also "...tend to mitigate disturbances arising from fluctuations in credit". 
As fluctuations in credit brings about fluctuations in the quantity of money, an ever expanding money supply hence brings about disturbances to an economy. On the flip side, increased saving is a safeguard of stability.

Based on Hayek's insights, the development in the ratio between money supply and saving especially during the last fifteen years should make economic alarm bells all over the U.S. chime.

The only question is how long the bells will sound the alarm before the markets react with unmanageable force.