We Need More Global Shopping
Rodney Johnson | December 19, 2019 | Years ago, I can remember my mom coming home from a day of shopping around the holidays and announcing that she'd saved over $600. My dad immediately asked the obvious question. How much had that savings cost? As we peruse the online and brick-and-mortar malls this last week before Christmas, we're barraged with seemingly great deals that announce how much we'll save if we simply part with some of our cash or agree to take on debt. Even though I expect a strong holiday season due to low unemployment and a strong stock market, there's one big data point that shows, on a longer trend, we're just not that into it. Americans are saving more money than in years past, and we're not alone. While this helps us individually, it comes with some obvious (and some not so obvious) side effects. According to the Organization for Economic Cooperation and Development (OECD), in the early 2000s Americans saved between 3% and 4% of their income. That number shot up to almost 9% in 2012, in the aftermath of the financial crisis, and then settled into a range between 6.75% and 7.75% through 2018. Now, it's creeping higher. The OECD expects Americans to save just over 8% this year, and maintain that rate in 2020 and 2021. While that might sound like a lot, consider that the Swiss will save 17.65% of their income, the Swedes 17.14%, and the Germans 10.95%. On the face of it, money we save is money we don't spend, which reduces economic activity and GDP. That's one of the reasons the Fed lowers interest rates, to induce us to spend more by lowering the return on our savings. Today, the average interest on a savings account is 0.09%, while inflation is running about 2%. Every year that we leave $1,000 in a savings account, we earn $9 but lose $20 in purchasing power. And yet, we're still socking it away faster than we did in the mid-2000s. Obviously, we have a different set of priorities than the Fed. We're preparing for the future. With the huge Baby Boom generation squeezing through the retirement door, millions of Americans are trying to save as much as possible to fund their golden years. And finding opportunities to grow those nest eggs is exactly what Harry and I set out to do for our Boom & Bust readers. At the same time, the Millennial generation isn't buying homes at the same rate as previous generations, which keeps some of their cash on the sidelines. Overall, we're getting older, following the footsteps of the Europeans. If our birth rate and family formation cycles don't turn up soon, we can expect to look a lot like Germany in years to come. But we're not putting our extra cash into savings bonds. We like things a bit more exciting in the U.S., so we're opting for equities. While the Fed isn't doing a good job of persuading us to spend, the central bankers have done a great job of pushing down interest rates so far that we're moving out on the risk scale with at least a portion of our savings. We're doing whatever we can to earn returns, which means buying longer maturity bonds, lower-quality bonds, and equities. As more money chases each category, the prices go higher. At least, for a while. Japan serves as an extreme example of where this eventually leads. The country posted sky-high savings rates in the 1970s, typically socking away more than 20% of their income. At the time, they were a nation of households with few children. Now they're aging, and the savings rate dipped below zero in 2014 before recovering to just over 4% this year. Seniors represent more than 25% of the population and are dis-savers, they spend more than they earn. They're also price-sensitive, which is why Japan has been in a deflationary funk for decades, with no end in sight. To be sure, our birth rate is well above that of Japan and Western Europe, so we won't have the same level of population imbalance that exists in those countries. But we're not the only other country facing issues. China will transform from a global growth engine to drag. The Chinese regularly save more than 30% of their income, which fuels domestic investments through bank lending. But like Japan, they've had an exceptionally low birth rate for decades. When the aging Chinese become a nation of dis-savers, they will curb domestic economic growth and make China even more reliant on exports than they are today. Without a growing world economy to buy more of their stuff, things might not go well. So while you peruse Amazon or the local mall to get those last few gifts, consider bumping up your spending limit a little bit for the greater good. And then when you gather with family at Christmas, encourage the younger generation to have kids. We'll need the extra workers, and shoppers, in the years to come. 
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