THE EXCESS SAVINGS FALLACY

 

The major reason that the US and Global Economy are really very healthy - we hear over and over - is that the US consumer is in great shape - with 2 trillion dollars of excess savings they can put to work any time they want.

On top of this we're told Retail Sales continue to show amazing strength,

Fallacy 1: If you take out Bernard Arnault, Jeff Bezos and Elon Musk, the excess savings number drops by 25 percent.  If you take out the next 5 richest humans, the excess savings number drops by 50 percent.

In fact 60 percent of Americans don't have enough savings to cover a $1000 dollar emergency.

Excess Savings?

Fallacy 2. Yes, the Nominal Retail Sales number continues to rise BUT REAL RETAIL SALES - that is to say Retail Sales Minus Inflation has been negative since February of 2022 - over a year.  

Unit Sales are massively down.  People are not buying more stuff.  They're just paying more for less stuff and going deep into debt to afford it.  Consumer debt is at an all time high.

This is not to suggest the stock market will do anything in particular.  After all the stock market can stay irrational longer than you can stay solvent.

But the real US economy, where consumption accounts for 70 percent of GDP,  is in trouble. 

Even as the Fed is raising rates to kill inflation.

That means all that consumer debt is harder and harder to service.

Real people, real problems.

But the Jobs Market is really strong right?

The only jobs number that counts is REAL WAGES; according to the BLS, Real Wages are falling even as real prices are rising:

From January 2022 to January 2023, real average hourly earnings decreased 0.9 percent, seasonally adjusted. The change in real average hourly earnings combined with an increase of 0.3 percent in the average workweek resulted in a 0.7-percent decrease in real average weekly earnings over this period.

So people are working longer hours for less money to buy things that are getting more and more expensive.

Finally when you hear analysts say Inflation is coming down now - THE FALLACY is that inflation is rising - just at a slower rate than before.  They really mean the rate of inflation is falling.  But if inflation has been out of control, just making prices rises a little less quickly even as your wages are falling does nothing for the the average worker.

So if you happen to be one of the fotrunate few who does have a little extra savings - you might consider putting it into something that will appreciate as the value of the money used to buy it deteriorates.

Like Hard Assets.

After all, what is inflation but the deterioration of the value of currency?

And as currency detiorates, hard assets appreciate.