The falling US Savings Rate..

The falling US Savings Rate is going to have a catastrophic consequences. Find out more about the falling savings rate

Possible Consequences Of Savings Rate Problem In The US

The savings rate problem has always affected US, though the negative savings rate was prominent in the in the years of 2002 when Americans had felt the touch of negative savings rate after a very long time since the Great Depression. Even though the savings rate of US was declining ever since the 1960s the decline gained traction in the 1980s. Now the negative savings rate had a real detrimental effect in the US economy. Even though the savings rate of US was declining ever since the 1960s the decline gained traction in the 1980s. Now the negative savings rate had a real detrimental effect in the US economy. But as the saying goes “to turn the table”, the American economic scenario was exactly reversed which was seen from the year 2008 onward when the problem of increased saving rate arose which has started again showing its detrimental effect on the economy.

Now there were various factors that led to the savings rate problem in the US and we shall see them accordingly. The root cause for this problem was that people spent too much money; a negative rate can only suggest that American people were going in deeper debts day by day. The American spending was upto so such extent that people had ran out of money and that too by taking debts which ultimately hit the economy, as slowly people started spending less as they had no money, which led to inactivity in the economy which led to recession. The consequence would include increased dependence on foreign nations. When the people of America would run out of money, they would have ultimately needed it from somewhere else; the money would have been provided by the foreign investors. Now Foreign Direct Investment (FDI) is a good thing but too much FDI could destabilize the economy by making the US Dollar lose its value in the international market. The biggest consequence would have been seen in the government spending. As the US population was now aging, the retired persons would not have enough funds due to the negative savings rate and thus would have been completely reliant on the social security and medical healthcare provided from the government. Parallel to which the working people would also not have been saving and thus when they would have retired with no funds to support themselves. Owing to this phenomenon the government would not have been able to function properly due to shortage of excess funds. Having to refill excess funds government would have to increase their spending which would further lead to increase in taxes and would further exacerbate the situation.

The savings rate problem was totally reversed from the year 2008 when the US Savings increased considerably as the American families saved more and spent less. Depending upon how fast the income grew the economy would take course in that direction. There are mainly two drivers for this increased savings, first being the rising debt of mortgage and the second was increased savings rate. American people started saving more since the year 2008 that really hurt the production sector as people consumed less. If people would continue to save then the rise in savings would affect in such a way that percentage increase per unit in the savings rate will account for reducing the spending by $100 Billion, which would then have a serious implication on the economy. But if the growth in economy remains positive then it will lead to lowering of household debts and also a slack to have a sufficient consumption.

If the American population would not increase their consumption then the economy would be in a serious trouble. In the past history American population were responsible for nearly three quarter of their GDPs growth from the year 2000. From the year 2000 the savings rate decline that reached -0.7 was majorly responsible for increasing the household debt in 2005. The American economy is closely scrutinized by the rest of the world and why it should not be as it is the economic superpower and the trade policies of various countries are linked to the US economy directly, whatever be the reason be American economy has always seen better days and so we can surely hope it recovers again and thus making other countries feel at ease.

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