Tuesday, October 30, 2012

Chart of the Day (Musical Tribute)

October 19, 2009
Asia Said to Be Leading the Globe Out of Crisis

The United States must increase its national saving rate,” he said. “The most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.”

I'd say we're pretty much failing on all fronts.

Click to enlarge.

Note that there doesn't seem to be any correlation between the personal saving rate and the inflation adjusted fed funds rate until the early 1980s. The Federal Reserve sure has convinced us to take big risks with our savings since then though. I wonder what did it?

November 21, 2012
Deflation: Making Sure "It" Doesn't Happen Here

We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Oh yeah, now I remember.

Here's the crazy part to me. As a saver, I tend to save more when interest rates are lower because my savings can't grow as much. I therefore need to save more in order to compensate. That means fewer trips to the malls and less money to spend on discretionary items.

Of course, there might be another way to look at it. If the rich don't save because they already have more than they know what to do with, the middle class don't save because they've been convinced that the stock market is a "sure thing" over the long-term, and the poor can't save because they are living paycheck to paycheck, then who exactly will save?

I guess it is up to me, lol. Sigh.

Source Data:
St. Louis Fed: Personal Saving Rate
St. Louis Fed: Effective Federal Funds Rate
St. Louis Fed: CPI


Jazzbumpa said...

Mark -

You've identified two realms that are distinctly different, and that makes me want more. It looks like we might have gone back to a time of trendlessness, though at a greatly reduced savings rate.

That double squiggle at the lower left might even have a trend line at an up-left angle.

Can you pinpoint the financial crisis on this chart?


Stagflationary Mark said...


It looks like we might have gone back to a time of trendlessness, though at a greatly reduced savings rate.

I think that's probably true. If we can believe the Fed's 2% inflation target then we'll be stuck on the left side of the chart meandering up and down (toggling between crisis and non-crisis).

Can you pinpoint the financial crisis on this chart?

December 2005 to December 2007 has an average personal saving rate of 2.48% and a real fed funds rate of 1.68%. That's towards the lower right on the chart. From there it moved up (higher saving rate) and to the left (lower real fed funds rate).

Stagflationary Mark said...

That recent collection of tightly packed dots shows how hard it is for us to move from the present location (since the Fed can't actually lower the rate below 0% and the market knows it).

AllanF said...

You get what you pay for.

Stagflationary Mark said...


We get monetary policy at essentially no cost in this country. That's what we're told.

Of course, it can pay for some of us to predict how lousy the economy will do before the Fed does. That way we can rush in and buy long-term TIPS before they do. Not saying I know anyone who might have done this. Not saying I don't, lol. Sigh.

In all seriousness, it was one of my better investment calls since starting this blog. Hindsight has been kind to my death of real yields prediction.

And what did I get for it since I'm planning to hold to maturity anyway? On the one hand, not much. On the other hand, not nearly as shafted as those sitting in cash awaiting a normal cyclical economic rebound accompanied by higher real yields. Sigh.