Submitted by Taps Coogan on the 6th of June 2018 to The Sounding Line.

The US personal savings rate fell to 2.8% in April, barely higher than the July 2005 low of 1.9%, and nearly the lowest level on record.

Personal Savings Rate Nears Record Low

The US savings rate has followed interest rates lower since the 1980s. As the cost of borrowing has fallen, households have been able to borrow increasing sums of money without seeing their monthly interest expenses become unaffordable. Accordingly, households have relied less on savings and more on borrowing in order to fuel their increasing consumption.

Personal Savings Rate vs 10-Year Treasury Rate

Total household debt is currently a record $13.22 trillion, yet debt service payments as a percent of household income are near their lowest levels on record.

Total Household Debt Hits Record High

Household Debt Service Payments as % of Disposable Income Near Record Lows

Increasing lending and spending has fueled the growth of America’s consumer led economy since the 1980s, not increased saving and wealth. The last decade of artificially low interest rates, induced by the Federal Reserve’s ‘Zero Interest Rate’ monetary policy, has added fuel to the fire and encouraged households to borrow record amounts and save exceptionally little.

The result is that US households, much like the US government, are massively over-indebted. As the Fed continues to reverse a decade of ultra-low interest rate monetary policy, households face the possibility of rising debt payments, reduced access to cheap credit, and very little in the way of savings to fall back on. That is a recipe for disaster.

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