Many persons don’t have the 5% to save after a drop in salary. So any savings is actually hoarding as consumption has decreased more significantly in proportion to the decrease in capital earned.
I own my own biz. I have had an average of 12% decrease in revenue year to year since 2008, with 2009 being the worst since 1994. My net though has decrease less than 6%. How do I do it? No capital improvement expenditure, letting go personnel, freeze advertising, cutting any overhead, just so I can stay in biz.
On a personal level, no dinners out, no mall visits, no starbucks. No extra to fund that SEP/IRA.
Fact one - consumption has not decreased. Consumption is now running at the same rate as before the recession.
Yes Virginia, even with 10% unemployment rather than 4%.
Business investment fell by a quarter. Tax receipts fell by a sixth. Transfer payment benefits increased by 3% of GDP. The trade deficit was cut in half (halving oil prices alone added several percent to GDP).
Initially, consumption fell by all of 3%, to finance the increase in the savings rate, from 0 to 7%. Then the stock market turned around, and as soon as it did, consumption began to recover. The savings rate fell back to 4%, then rose again slowly to 5%, where it is now. Consumption came back first from the savings rate turning around, and then from higher disposable income as GDP began growing again.
That is the reality. There has been no great hardship in the aggregate reflected in American consumers behavior. They took a sixth month hiatus from big ticket purchases like cars, and things are now back to normal - on the consumption side.
On the income side, a portion of the population is now dependent on transfers and on not paying taxes, and another portion is benefitting from recovering financial markets, netting to zero between them - the same level of overall consumption we have back before the recession began.
Ditto that...