The world is obsessed by quantitative easing and borrowing. But it is a simple accounting fact that for every borrower their must be a saver. Debits will always equal credits. And there are savers galore right now.
This chart shows the savings ratio of UK households and what are called non-profit institutions serving households (NPISH), or charities, in the main:
What is happening is aberrational. Households are saving almost 30% of their incomes.
Of course, that helps explain an economic downturn. This translates into a lack of demand in the economy.
It also shows that the deficit is increasing private wealth - although very unevenly, without a doubt, which is a major concern.
It also indicates the potential for spending to re-enter the economy when lockdowns are all over.
But there is a condition to that money returning to the economy. And to summarise the condition that must exist for that to happen it is that there must be freedom from fear.
That is freedom from the fear of unemployment, of losing a home, of not being able to work because of illness and not having the support needed if that were to happen, and so much more.
Is that freedom from fear going to end anytime soon? I doubt it.
Hat tip to Chris Dillow.
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Richard
I’m a bit confused
I read that UK households owe £15385 excluding mortgages ( March 2020 )
Does the stat. you showed mean that we are all trying to reduce our personal debt
or is it totally unconnected ?
This relates to your next item on ONS stats as well I think
Reducing debt is part of the savings ratio
This begs the question: Because we are majorly concerned should we reduce the deficit in order to decrease private wealth and reduce the uneven spread of it?
No
Not at all
But we do need to tackle the inequality that results
QE is merely a stratagem for getting around the EU rule which bans governments from printing money for expenditure. No one suggests that the money the banks print should be repaid so why do it when the BoE creates it? Furthermore the US FED doesn’t appear to tie itself with such shackles.
In a couple of months we will be out of the EU so create £875 billion, repay the existing QE and leave it at that, a mere expansion of the money supply.
We should also try and find another description for PSBR than “borrowing.” These are value laden words which allow politicians to exploit the “look how much debt they have left us with,” accusation. This unfortunately dictates that the loan must be repaid when it simply does not, none of it. I don’t know if it stands the test of time but there appears to be a link between PSBR and money supply so a possibility of a new term might exist there.
Agreed – more on this to come
We shouldn’t be using word like debt, borrowing, maxing out the credit card etc in association with the national financies. They’re entirely inappropriate, and, I assume, employed to deliberately mislead.
But we also know of the vulture funds and other opportunists who work in financial circles who feed of chaos and make a killing.
This to me is the only explanation for Government inaction – it’s because their supporters will benefit and sod everyone else.
That is why fear will rule – because it helps the rich get assets at fire sale prices.
[…] I noted earlier today, the government deficit is matched by a massive rise in household saving this year. But it is […]
This is one of the most pertinent articles I’ve read in a while. You are absolutely right. Nobody is going to stop squirreling away money and goods, and start spending their incomes freely until they feel reasonably secure in doing so. Security means freedom from the fear of losing a home, losing a job or business, falling ill with no backup, etc.
Government could do a LOT when it comes to lifting those fears. But instead, the UK government is making it clear that safety nets are being reduced, or are no longer there at all–and never will be, as long as they are in power.
People who are left to fend for themselves, will hang on to what they’ve got, won’t they? This government is turning us into hoarders and misers. And that’s not good for restoring a broken economy, is it?