The Sad, Sad Story Of $3 Trillion In Pandemic Savings

You've heard it again and again: Major developed economies, including and especially the world's largest, can avoid recession in part because consumers built up savings "buffers" and financial "cushions" during the pandemic. It's a narrative all at once plausible and dubious. There's no question that deposits and money market fund balances ballooned in the US, for example. What's less clear is whether that "dry powder" is meaningful for the broader economy given the distribution. If the majori

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12 thoughts on “The Sad, Sad Story Of $3 Trillion In Pandemic Savings

  1. Thank you! I’ve been waiting for a long time for such an analysis and you delivered!

    But one more thing I’d like to know… How much the bottom 40 and middle class consumed? i.e. what did they receive and what did they burn? As you said, it’d make sense they’re the ones needing to spend to keep the lights on. But how far did they go and how is that related to the inflation we got?

    The economy isn’t a morality play. And I’m a progressive so I want people at the bottom of the heap to still have a life worth living. OTOH, any adult should be able to exercise self control and financial discipline… if he/she is given the choice (i.e. I understand people falling for predatory payday loan when they are trying to keep the car running or the lights on and I want us to help; but not when they want a new TV).

    1. I’ve been trying to get around to writing this for ~two months, but the rapidity of the news flow recently kept pushing it to the back burner. I finally found the three hours I needed to put the charts together.

      1. Again, my thanks. I had tried looking at a few FRED charts or just googling key words to see if something from the BLS popped up but wasn’t having any luck. My GoogleFu must be weak… 🙂

  2. Very grim. If dipping one’s toe in consumer-exposed stocks, focus on companies with higher-income customers. E.g. RACE not F. To be clear, I’m not buying either of those right now.

  3. M-Man, nice piece to straighten out an urban myth that gets repeated every day in the mainstream media. There is no buffer for the people who need it the most which could explain why the consumer is dying on the vine which will manifest itself in GDP since the consumer is 65% to 70% of GDP.

    1. I’ve been reading “those angry days” while on vacation. The parallels between the late 1930’s and present day are shocking. While the medium vehicles are drastically different, the deployment of propaganda and nationalism (white implied) are not. The government corruption that led to the economic collapse mirror the past 50 years here. The tragic failure and lost lives of WW1 seem to mirror the average American viewpoint of Iraq/Afghanistan. Russia invading Ukraine even parallels the European conflict we seem to want avoid again today. I say all of this to say that I think we need another epic collapse financially to avoid an authoritarian takeover. The great depression opened American’s eyes to how corrupt government led to over empowered rich elites who broke the financial system through leverage. The New Deal reset the power dynamic and provided decades of prosperity for the working class. My view is we either attempt to repeat that sequence or fall into authoritarian control. I’m not sure about others but I will be bailing if the latter occurs. Parallels to Rome will soon follow.

      1. Other similarities include the US Nazi party rallies and economic sanctions applied to Japan due to their military adventure into China.

  4. Well done, sir. As you have pointed out, the whole notion of savings being “excess” is astonishing in its own right.

    I hope something delving into the other widely acccepted notion that there are so many unfilled jobs out there is in the hopper as well.

    How many of them are only part time? How many are lingering “post and hope” openings demanding elevated skills and experience at entry level salaries? Such as the required H1-B adverts designed to show that no US workers are available who could fill the opening.

    They are the two pillars of the argument that the economy is so strong that it can easily handle much higher interest rates. We shall see said the blind man to the deaf man.

  5. “There’s no question that deposits and money market fund balances ballooned in the US, for example.”

    The top “1%” and 80-99th percentile have likely cashed in some of their stock markets gains during late 2020 and into 2021, swelling cash and/or their money market holdings.

    However, at the same time, the “1%” are taking it on the chin in 2022. Elon Musk, Jeff Bezos, Warren Buffet,…etc. have seen tens of billions of dollars in paper losses.
    The wealth of the 1% has in fact decreased by about 700 Billion this last quarter which included 1.5 trillion in stock market losses. For example, Elon Musk alone has lost over 60 billion ( though I am sure he can still pay his utilities and Amex bill).
    But do not hold out a false hope that this spiralling inequality will somehow abate. This loss represents but a a small fraction of the 11 trillion added to the collective net worth of the 1% from 2020-2021. (figures taken from recent article by Ben Steverman)

    So even the most turbulent of times( pandemic, bear market, war in Ukraine,..) do not affect reality on a deeper level other than to cement the status quo, or, in other words – The more things change, the more they stay the same !

  6. Humans have yet to come up with a system of government that can maintain lasting marginal equality. Greed, driven by a scarcity mentality, will be what dooms our species. Look under the hood of climate change and there’s greed staring right back.

  7. The US needs a comprehensive social safety net for the lower income citizens of the USA. Ever the optimist, my hope is that when we are rid of the older politicians who still believe they are entitled to turn literally everything into a political battle and replace them with younger leaders (socially liberal with financial responsibility- as the vast majority of the people of the USA actually are) who actually want to work together to repair the longer term problems in the US – such as social safety/universal basic income, healthcare, education, immigration, clean energy, pollution etc., the US can take the next step forward as the leader of the free world.
    Looking at the data presented, which is extremely insightful, I agree it does not seem as if we are headed for a severe recession- as others have already mentioned.
    I have been traveling since May, and there appears to be no shortage of people traveling, staying in hotels and eating out. As for the “durables/goods” portion of the economy, if refrigerators are actually on sale when I get home, I will replace mine. I am not alone- with “excess inventory leading to markdowns” as almost front page news, why not wait?
    My son is still looking for a condo in Southern Cal- that market has cooled (as in condos go under contract 7-10 days vs. 2-3 days), and asking prices are stabilizing, but not declining. Hard to know, yet, if offers are still in excess of asking- that data is not yet out there. He is also hoping that the equity funds that bought up a huge number of the condos in the city where he is looking, will be forced to sell due to recently enacted short term rent prohibitions and due to rising rates. He also said that he does not expect a big dip- as approximately 48% of 18-29 year olds still are living at home with their parents. That statistic peaked at 52% during covid, but is still very high relative to the historical norm.

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