Sean Mcelwee — How Thomas Piketty and Elizabeth Warren demolished the conventional wisdom on debt

American households falling in the bottom third of income growth from 1999 to 2007 accounted for a full half of the decline in the overall saving rate over the same period,according to the IMF. Meanwhile, a 2012 Demos study finds that “40 percent of households used credit cards to pay for basic living expenses such as rent or mortgage bills, groceries, utilities, or insurance, in the past year because they did not have enough money in their checking or savings account.” Another 2012 study finds that “regions or periods with higher inequality are characterized not only by a more unequal distribution of saving rates but also by lower saving rates for most of the income distribution.”... 

In a recent study, Amy Traub, a senior policy analyst at Demos, sought to test whether those with credit card debt were the profligates portrayed by popular culture. She used a national survey of 1,997 households to create two groups indistinguishable in terms of income, race, age, marital status and rate of homeownership. The only difference? One group had credit card debt, the other group didn’t. Traub finds that the households without debt had more assets, and fell back on them when dealing with unexpected expenses. She finds “little evidence” that “households with credit card debt are less responsible in their spending habits than households that do not have accumulated debt.” Instead, she finds that unemployment, children, lack of education, lack of health insurance and negative home equity correlate strongly with high levels of debt.

In their famous book on the subject, “The Two-Income Trap,” Elizabeth Warren and Amelia Warren Tyagi argue that slowing income growth, not overspending, is what’s driving families into debt.

Salon
How Thomas Piketty and Elizabeth Warren demolished the conventional wisdom on debt
Sean Mcelwee

Michael Pettis — Why Increasing Savings Does Not Bring Wealth

Debate about the global savings glut hypothesis is mired in confusion, a fundamental one of which is the seemingly obvious but false claim that a global savings glut must lead to higher global savings. Here, for example, is a recent piece by one of my favorite economists, Barry Eichengreen: 

There is only one problem: the data show little evidence of a savings glut. Since 1980, global savings have fluctuated between 22% and 24% of world GDP, with little tendency to trend up or down.

As surprising as it might sound, global savings gluts do not result in higher global savings except under specific, often unlikely, conditions.

What is a savings glut?

There is no formal definition, but whenever market conditions or policy distortions cause the savings rate in one part of the economy to rise excessively (itself an ambiguous word), we can speak of a savings glut. There are at least two main causes of a savings glut. 

1. A rise in income inequality. We see this in Europe, the US, China, and indeed in much of the world. As wealthy households increase their share of total income, and because they tend to save a larger share of their income than do ordinary households, rising income inequality forces up the savings rate. 

2. A decline in the household share of GDP. We’ve seen this mainly in China and Germany over the past fifteen years. When countries implement policies that intentionally or unintentionally force down the household share of GDP (usually to increase their international competitiveness) they also automatically force down the consumption share of GDP. Because savings is defined as GDP minus consumption, forcing down the consumption share forces up the savings share. There are many policies and conditions that do this, and I discuss these extensively in my book, The Great Rebalancing, but the main ones are low wage growth relative to productivity, financial repression, and an undervalued currency. 

Notice that in both these cases, and completely contrary to the popular narrative that praises high savings as a consequence of household thrift, and so as morally virtuous, the rise in the savings rate does not occur because ordinary households have become thriftier. In the former case household savings rise simply because the rich increase their share of total income. In the latter case national savings rise without households in the aggregate increasing their savings....

Quotes Marriner Eccles, too.

EconMatters
Why Increasing Savings Does Not Bring Wealth
Michael Pettis | Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University

Bloomberg — Banks Use $1.77 Trillion To Double Treasury Purchases

Scott Fullwiler tweets, As I've always said, Treasuries are the opportunity cost of bank lending, NOT IOR.

Bloomberg
Banks Use $1.77 Trillion To Double Treasury Purchases
Cordell Eddings and Daniel Kruger

Comprehensive post on saving and borrowing/lending in the US.