A Tale Of Two Charts

Americans have been cash-poor for decades leading into the pandemic last year. It seems that using credit – mortgages, student loans, car loans, and consumer credit – have just become an unfortunate part of American life.

Related: Debt Has Spread Like Virus

With the pandemic, people are spending less on discretionary things like travel and eating out and the government has sent out several rounds of stimulus checks to most households (with another likely on the way). As a result, across the country, Americans are sitting on an amazing pile of cash. This JP Morgan chart shows just how much:

Despite this seemingly good news, I’m a pessimist when it comes to predicting most people’s future financial habits, so I’ll guess that this is a temporary blip and that the cash will go somewhere in 2021. Either it will be spent, invested, of used to pay bills.

I’m hoping that it goes toward paying down debt – but that’s unlikely. Even as cash savings have risen, household debt has continued to go up at a pretty steady rate according to this NY Federal Reserve chart:

The debt trend is unfortunate given that the #1 pillar of financial independence is spending less than you make. It seems that households – like government & corporations – continue to live for today, without serious worry for the potential impacts on tomorrow.

Do you foresee anything that will reverse this trend?

Image Credit: Pixabay

6 thoughts on “A Tale Of Two Charts

  1. Chief, I imagine that after the pandemic has passed, Americans will revert to mean. Hence, savings will decline and spending will increase (beyond income). Our government, of course, is addicted to deficit spending in good times; tough times merely move government spending to even greater unprecedented heights. In theory, the “stimulus” is for the purpose of helping people through tough times, so they have money to spend. Seeing people banking that money make the theory questionable. My impression is that many who need help most do not receive enough. Millions more who can persevere without help, receive money anyway. The government is a blunt force instrument, unable to restrain itself from “going big” rather than “going smart.”

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    1. Yes – blunt, dumb instrument, for sure! The worrisome thing about the unprecedented level of stimulus spending is that when we did the same thing 10 years ago for the Great Recession, the spending was never dialed back after it was over. It just became the new normal.

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  2. Yeah I think unfortunately, the middle/upper middle class clearly came out financially ahead, but now there is an even bigger gap between those who need it most. I don’t mind the stimulus being overshot a big, those who are flush with cash will find a way to spend it. If vacations surge in price via temporary hyperinflation that money will get spent in helping recovering industries. But long-term I worry that the gap is just widening and this has made it worse.

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    1. Yeah – Every recession hurts poor people disproportionately. There is a big gap state-by-state with this one, depending on how tight the Governors locked down. Unemployment peaked over 20% in some states and never got above 6% in others. CBO saying it will take 3 years to recover jobs in the states that pursued aggressive lockdowns. Other states are already back under 4%.

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  3. There may be a few who come through this with a new outlook and learn to manage their lives a little better, but I fear the vast majority will be right back to the old habits in no time. My bigger fear is that the government has discovered a new toy, and will continue its deep dive into further debt. After all, how can we really expect individuals to be financially solvent when the government sees no need for balancing budgets and creating surpluses. It really doesn’t matter which side of the aisle either. Both sides are digging us in deeper and deeper. Our creditors will be making demands at some point. I fear this new toy will be pulled out and used anytime there’s a little hiccup in the economy and continue adding to our ever mounting debt pile. I also fear it’s a slow plod towards universal income. How else do you explain yet another stimulus package when it’s obvious that the first two have been largely saved. I simply don’t recognize our country anymore. Oh, and guess who gets to pay for it? …Sorry. I know I’m ranting.

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    1. “I simply don’t recognize our country anymore” – agree completely! It’s hard not to rant at the ridiculousness. Ten years ago at MegaCorp, our Congressman came to one of our Officer’s Lunch. It was at a time the two parties were bickering over the debt ceiling. I asked him how much attention / discussion the national debt gets among Congresspeople. He said “very little” – “no one talks about it and most of the people in Congress lack even a basic understanding of economics”. Yikes!! And, that was 10+ years ago. The national debt is probably 3x (to GDP) what it was then! (Hard not to rant!)

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