Flush With Cash

There's an interesting article over at Bloomberg noting that "The American Consumer is Flush With Cash". It shows that the American consumer has been saving money at an unprecedented rate and had started to do so even before the pandemic hit.  This pretty much also corresponds to earlier studies showing that Americans where they could financially afford to do so stuffed all that earlier stimulus money into their bank accounts.  The article points out that people normally save money in uncertain times and that lower interest rates help as well.  However,  I think is the bigger deal is that there has been considerable less outlets for consumers to spend all that cash.  

Think of all the things people haven't been able to do much of this year; vacationing, going to restaurants bars or concerts, movies etc.  Think of all the big ticket items that have been either canceled or postponed. How many weddings, graduations, birthday milestones or the like are not happening this year.  Then tack on all the money not spent on traveling to get to those events where applicable.  How many billions for example are going to be saved around this country over the next two months simply because people can't get home for the holidays?

The point is all of that money is sitting in bank accounts burning holes in people's pockets.   Buying clothes on line or dropping by your favorite restaurant for takeout doesn't begin to eat into discretionary spending because it doesn't cost as much money.  Going to a nice local restaurant with my bride around me prior to Covid was $120-150 dollar evening.  Take out may be a third of that.  

Let's say that by next spring things begin to look like the new normal after Covid and the world starts opening up by then.  The mad rush to go out and spend at least some of that money is going to likely be an irresistible torrent of cash flooding into the economy.

Is there any historical precedent where consumers were forced to save money because many of their venues for putting it back into the economy were unavailable?  Well there is!  World War II!  During the war rationing and war time restrictions on movement severely curtailed consumer spending.  Back then consumers didn't spend money because there wasn't much to spend it on.  Everything was being diverted to the war effort.  Consumers had four years of savings to spend at the end of the war and spend it they did.  While there were mild recessions in the years following that war's end, the US and the world economy boomed in those subsequent years.

We need to contemplate that history may repeat itself in the next few years.