The Great Savings Glut
It looks like savings, but where do you see it?
Savings, what is left over after consumers spend after-tax income, are held in the system and lent out to borrowers. It used to be that the amount lent out was dependent on savings. This kept debt under control.
Long-term bond yields were very stable as a result. Of course this all happened before central banks went off the gold standard. This freed them up to print currency to lend out. They could just produce available funds out of thin air.
Of course today Asian consumers save more than U.S. consumers, but that is not saying much since the U.S. savings rate is now negative. Consumers in the U.S. on average now spend more than their after-tax income.
Our new Fed chairman says that is OK because we just borrow from those silly Japanese consumers who save way too much, thus doing the world a favor. They are just too thrifty.
But let me ask you, does it make sense that if the Japanese consumer is so thrifty, so conservative where they won't spend their savings, that they would then lend it out to a basically bankrupt U.S. consumer at very low rates?
Even if they did there is nowhere near enough real savings to satisfy our borrowing appetite.
Logic tells us that there is something very different going on. The following diagram Illustrates what is really happening: in a world where central banks have no restrictions, they can make printing money look like savings. The only difference is that printing money produces debt.
So there is no savings glut. The U.S. is borrowing created money as the world prints currency.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter