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 majority of the pandemic windfall is concentrated in the hands of the rich, it’s usefulness as a recession deterrent is questionable. After all, the richer you are, the lower your marginal propensity to consume, and many advanced economies are heavily dependent on consumer spending.

The figure (below) is an indictment. And a rather damning one at that. I’ll leave it to readers to decide who should be indicted or whether it’s just another manifestation of an irredeemable system.

The share of checkable deposits and currency controlled by a tiny fraction of Americans soared to almost 30% during the pandemic.

Let that sink in. One third of America’s deposits and physical cash are in the hands of just 1% of the nation’s citizens. And that’s the cash the government knows about. The richer you are, the less cash you typically hold in transparent, onshore accounts.

In an article published earlier this year, Bloomberg touched on this, but largely missed the point. In absolute terms, the 80th to 99th percentiles accumulated more than $1.1 trillion in checkable deposits and currency from Q4 2019 through Q1 2022. That’s more than the $1.09 trillion accumulated by the top 1%. But just barely. And besides, the 80th to 99th percentile covers a lot more people!

As the figure (above) shows, out of some $3 trillion in “new” liquid savings accumulated over the pandemic era, virtually none of it still resides with the bottom 40% of Americans.

Worryingly, the bottom 20% now has $13 billion less in their checking accounts and under their mattresses than they did at the end of 2019.

The figure (below) shows the evolution of balances for the lowest-income Americans over the course of the public health crisis.

In Q4 of 2019, that cohort had roughly $59 billion in cash and demand deposits. As of Q1 2022, they had $46 billion.

That cohort comprises around 25 million households. By definition, they have the highest marginal propensity to consume. If the question is whether they have “excess” savings left over from the pandemic, the answer is “no,” and it hasn’t been “yes” since the fourth quarter of 2020.

Fortunately, the situation is markedly better for every other cohort, including the key 40th to 60th percentile group, whose cash buffer is more than four times what it was just prior to the pandemic. The same is generally true for the 60th to 80th and 80th to 99th percentile groupings.

But the real standout is the top 1% cohort, where checkable deposits and cash have risen 6.5 times over compared to Q4 2019 levels.

That astounding statistic brings us full circle. The top 1%’s share of readily available cash jumped from 19.5% in Q4 of 2019 to a record high of 30.1% this year (figure below).

The 80th to 99th percentiles saw their collective share fall four percentage points over the same period. The middle class’s share was effectively unchanged. The bottom 40%’s share dove to a record low below 6%.

Readers are, as ever, free to interpret all of this as they see fit. I’d gently suggest it represents a policy failure on at least one level: While it makes intuitive sense that the bottom 20% would rapidly run down stimulus money in the face of economic hardship and, eventually, generationally high inflation, the fact that the pandemic policy response ended up swelling the rich’s share of the nation’s cash balances by more than 10 full percentage points, suggests America once again accepted spiraling inequality as the price of saving the economy.

Policymakers likewise accepted that Faustian bargain in 2008, and on numerous occasions previous. I’m not sure it’s sustainable in perpetuity, especially considering the extent to which the benefits of such policy choices are accruing to a smaller and smaller group of people with each iteration.

As for the broader economic outlook, most income cohorts in America do indeed have a lot more cash than they did prior to the pandemic. Or at least that’s what the Fed’s data suggests. But the relevant questions revolve around the number of households covered by a given income bucket, how inclined the majority of households who do have excess savings are to deploy it in an uncertain environment and how far that cash will go when prices are rising for almost all goods and services.

According to a YouGov poll of 18 nations covering some 20,000 adults, fewer than half said they added to their savings during the pandemic. The results were shared with Bloomberg, whose David Goodman described the figures in stark terms. “The research punctures the idea that households have a cushion against a deepening cost of living crisis,” he wrote, adding that “of those who saved, about half are managing to hold onto the extra money [while] more than a quarter spent the money on bills or other essential purchases.”

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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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