In stark contrast with the great financial crisis of 2008, US households have saved a lot of money during the pandemic. This is true not just in total dollar terms, but also as a percentage of disposable income.
This is obviously not particularly surprising, given restrictions on movement and the closure of the businesses where people would normally spend money, but it does give us some indication about the nature of the post-pandemic economic recovery. In particular, we can expect some of this savings to be put to work as spending, providing a significant boost to the economy.
In technical terms, when the release valve is opened on this pent up collective savings pot, the ‘velocity’ of money circulating around the US is likely to increase. That is, the number of times that a dollar changes hands over a given period is likely to increase. An increase in the velocity of money bodes well for the US monetary and fiscal authorities; their stimulation of the US economy will be more effective if the money they pump into the economy actually moves around, rather than getting stuck with banks who are worried about lending to consumers.
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