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.