The Tragedy Of America’s $3.5 Trillion In ‘Extra’ Savings

Back in June, I told readers the “sad, sad story” of $3 trillion in pandemic savings.

The tale was as predictable as it was tragic. Deposits and money market fund balances ballooned in the US following the onset of the pandemic, leading to speculation about the extent to which so-called “excess savings” and “cash buffers” could cushion the economy from ongoing rate hikes and the drag from generationally high inflation.

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

Naturally, this debate is even more relevant now than it was five months ago, so I thought it’d be worth checking the updated distribution of liquid savings across income cohorts for notable changes. I wasn’t disappointed. Or, actually, I was. Because this already sad story is now even sadder.

As of Q1, the 80th to 99th percentiles managed to accumulate more than $1.16 trillion in checkable deposits and currency since the fourth quarter of 2019, more than the $1.14 trillion accumulated by the Top 1% over the same period. But just barely — the slim margin was notable given that the 80th to 99th percentile covers a lot more people.

Within three months, the ultra-rich leapfrogged the merely rich. As of Q2, the richest Americans sat atop an extra $1.28 trillion in checking account deposits and physical cash, up $142 billion in just 90 days. The merely rich managed to grow their liquid savings by less than half that.

The figure (below) shows the distribution of some $3.5 trillion in excess savings above pre-pandemic levels by income cohort.

The bottom 40% now has just $105 billion more than they did prior to the onset of COVID. That’s remarkable given the scope of fiscal transfers during the pandemic. To the extent it speaks to the corrosiveness of inflation, it’s a tragic irony given that the same government transfers helped facilitate runaway price growth.

At the end of March, the bottom 20% (so, the least well-off Americans) had $16.6 billion less in their checking accounts and under their mattresses than they did at the end of 2019, a disturbing statistic on its own, particularly given that the “burn rate” (as it were) appeared to be accelerating.

By the end of June, that cohort had just $15 billion in liquid savings, down a remarkable 65% from the prior quarter. The poorest Americans now have almost $44 billion less in available cash than they did during the final months of 2019 (figure below).

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 isn’t just “No.” It’s “Hell no!” And it hasn’t been “Yes” in two years.

Fortunately for the economy, the situation is markedly better for every other cohort, including the key 40th to 60th percentile group, whose cash buffer is now more than five times what it was just prior to the pandemic. That figure for the 60th to 80th percentile group is 4.5 times and for 80th to 99th percentile grouping, it’s 3.9.

But, as was the case with Q1’s data, the real standout is the Top 1% cohort, where checkable deposits and cash have risen 7.4 times over compared to Q4 2019 levels.

The figure (above) gives you a sense of just how farcical this conjuncture really is. It shows the $44 billion decline for the least well-off Americans (red arrow) and also the Top 1% leapfrogging the 80th to 99th percentile group (green line inflecting above the orange line).

That brings us full circle. The top 1%’s share of readily available cash was 19.5% in Q4 of 2019. As of the latest Fed data, that figure was 32%, a record high.

That would be a damning enough indictment of the pandemic policy response by itself, but the real tragedy comes when you consider that the bottom 20%’s share, which stood at 6.5% during the third quarter of 2019, was just 0.3% in Q2 2022 (figure below).

Do note: The 0.3% figure cited above isn’t a typo. No decimals were misplaced. In less than four years, the bottom 20%’s share of liquid cash sank from nearly 7% to almost nothing.

I’ll recycle some language from June’s article documenting Q1’s breakdown. Although readers can interpret the figures as they see fit, I’d gently suggest they (the numbers) represent 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 12 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.

To the bottom 20% of households for whom the word “nothing” can now be taken almost literally, don’t fret. Your lost share of the nation’s savings is being put to good use by the Top 1%. Sure, you’re down $44 billion in readily available cash since the pandemic, money that could’ve been spent feeding your family and putting clothes on the backs of your children. But isn’t it better that Elon Musk spent it buying Twitter? Your kids may be starving, but at least “free speech” is safe.


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14 thoughts on “The Tragedy Of America’s $3.5 Trillion In ‘Extra’ Savings

    1. It has occurred to me numerous times that if you were truly interested in leveling the playing field between capital and labor, you would at the very least tax them both at the same rate … right?

    2. I wholly agree on the idea of a wealth tax.
      The wealth hide their wealth in stock and property. And do not sell their holdings – so no tax paid.
      Maybe it is time for the wealthy to pay an annual tax on the gain in their holdings.

      But let us not forget the multinational corporations. A common practice for US multinational corporations is to structure their operations so that overseas subsidiaries are the ones reporting income, and profits. This leaves a US operation that generates a lot of sales but with little or no taxable income to report, depriving the government of much needed tax receipts.

  1. “The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover didn’t know that money trickles up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow’s hands.” Will Rodgers

    The more things change………

  2. Three rounds of stimulus checks put around 3500$ into the hands of each qualifying American adult and about 2500$ for each child. This does not really impact the financial position of the top 40%. So how to explain this increasing income disparity, inequality and growth of pandemic savings? It is more than just a trickle-up effect.

    Is a possible explanation the transfer of wealth during the pandemic period due to the fact that the top 40% are the primary investors in the stock market. And they could continue to invest and/or remain invested.

    Likely they generated a lot of wealth off the lows of March 2020 until today. And (most likely) some of these gains were converted into cash!

  3. Another tidbit, according to an article in Forbes, total cost of COVID relief in 2020 was 2,607 billion dollars, yes indeed a lot of zeroes. An certainly ran up the US deficit that year.

    But to put that in perspective, US GDP in 2020 was 20,894 billion$ (world Bank figures). This was a decrease from the 21,373 billion $ GDP in 2019.

    1. I do not have a crystal ball. A fed pivot (whatever form that might take) could be an occasion for a ( bear??) market rally.

      But my take is consumers and investors will have a difficult 2023 and maybe even 2024.

      The US is a consumer economy. A combination of persistent too-high inflation in 2023 and even into 2024, the lack of cheap money and a possible stagnant or falling economy are all factors that do not bode well for the consumer nor the investor.

      Internationally, Europe is not in great shape. And we have yet to see the full impact of China’s 0-Covid policy which may have put China’s leadership in a no-win position. Lifting restrictions will cause a wave of infections and deaths. Not changing course risks ongoing protests and will further damage their economy.

  4. H,

    Looking forward to using these charts with a nay-saying friend, the kind who loves a good conspiracy when it comes to plain ol’ facts. (As in, he likes to produce his own.) Could you please supply source data? I found “Fed” in the text and then went back to the March Bloomie article, but is there more? My favourite search engine is producing nothing when I search using terms from your text above. Thanks.

  5. A record-breaking share of Americans are turning their 401(k) accounts into emergency piggy banks, according to Vanguard.

    Dissecting data from a sample of the approximately 5 million employer-sponsored 401(k) accounts that Vanguard handles, researchers said a record number of account holders were making hardship withdrawals in October.

    Vanguard investor pulse: Anxiety and cash needs on the rise

NEWSROOM crewneck & prints