Eventually the banks will start lending again, and the velocity of money will increase.
With respect, No, they won't. The savings rate is so low because interest rates are low. This came about as a consequence of two things -- first, Greenspan basically blackmailed Congress into bringing the budget into balance; second, rates had been deregulated, ending the era of the 5% passbook rate.
Capital formation played a role alongside the business tax cuts (accelerated depreciation etc) in the Reagan recovery, but that capital wouldn't have formed in the first place had it not been for the economy-killing Carter years when money market rates peaked a little north of 20%. There was so much cash around that lending jumped bigtime, leading to lots of construction jobs as Boomers used their large savings (made possible in part by those Carter-era interest rates) and declining rates from lenders and innovations like ARMs to grab vacation property on the water (lakes, oceans) and build posh second homes.
The bull market for stocks started in the Reagan years, as money shifted out of cash vehicles due to declining returns.
Lower interest rates have been around since the mid- to late-1980s, and capital formation has cratered. One of the first big achievements for the Clinton admin was NAFTA and GATT (both were longterm goals of Republicans), which with other policies led to rapid erosion of domestic industrial employment, government takeover of mortgage lending, and the rise of the so-called service economy. That died in along with the Clinton stock bubble during the mid- to late-1990s.
RE :”
Eventually the banks will start lending again, and the velocity of money will increase.....With respect, No, they won't. The savings rate is so low because interest rates are low. “
I believe what he is saying, consistent with posts I have done with Shiff, Faber, Rogers and Mises is that as soon as any economic activity or confidence rises inflation will take hold(I doubt houses will inflate soon). He is talking about inflation not a real recovery.
Now what is possible is that inflation, or Feds efforts to stop it, stalls the economy again which avoids hyperinflation but gives us stagflation kind of like now. That was always my theory.
Your comments seem consistent with Austrian theory wrt low savings and capital formation..