America’s Saving Rate and the Dollar’s Future

American households' saving rate has increased sharply since the beginning of the year, as falling equity and home prices have rapidly eroded their wealth. But, while that should lead to a lower dollar, which would narrow America's trade deficit and stimulate employment, the sharply higher US fiscal deficit will complicates matters considerably.

CAMBRIDGE – The saving rate of American households has risen sharply since the beginning of the year, reaching 6.9% of after-tax personal income in May, the highest rate since 1992. In today’s economy, that is equivalent to annual savings of $750 billion.

While a 6.9% saving rate is not high in comparison to that of many other countries, it is a dramatic shift from the household-saving rate of less than 1% that the United States experienced in 2005, 2006, and 2007.

Before it began rising last year, the US household saving rate had been declining for more than 20 years in response to the increasing level of household wealth. The rising stock market and the higher value of homes induced individuals to consume more of their incomes and to save less. As a result, most working individuals reduced the amount that they saved for their retirement, and retirees were able to increase their spending. The net saving rate fell to near zero.

To continue reading, please log in or enter your email address.

To read this article from our archive, please log in or register now. After entering your email, you'll have access to two free articles from our archive every month. For unlimited access to Project Syndicate, subscribe now.


By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.