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[Editors Note: The text version of the story is below.]
A growing financial conservatism among Americans signals a deepening deflationary trend.
Despite meager returns on savings accounts, households are socking away cash. Heres a chart and comments from the December Elliott Wave Financial Forecast:
In October, the US personal savings rate as a percentage of disposable income rose to 5.6%, its highest level in almost three years. ... Back in 1999, by contrast, households were emptying their piggy banks to jump into stocks and other assets. The trend continued until July 2005, when the savings rate hit a low of 1.9%. Naturally, the percentage rose as the 2007-2009 bear market grabbed hold, but over the course of the subsequent rally in stocks, a critical divergence has developed.
The Feds efforts to nudge investors away from cash will probably continue to fail as a deflationary psychology deepens.
The June Financial Forecast provides another perspective on the savings rate trend:
This chart shows how the urge to save has grown steadily over the last 15 years ... . According to Gallup, Nearly two in three Americans now say they enjoy saving money more than spending it, further establishing the pro-savings trend that developed in the wake of the 2008 financial crisis. With 65% saying they prefer savings and 33% voting for spending, the gap is easily at the widest since Gallup first asked the question in 2001.
Savers will probably endure paltry returns from their accounts awhile longer (The New York Times, June 15):
The Federal Reserve did not raise its benchmark interest rate on June 15, and the central bank said it expected to raise rates more slowly in coming years, an acknowledgment that economic growth had again disappointed its expectations.
The good news is that cash will be a boon to savers when prices fall across the board.
As we see it, the Fed will be powerless to stop a deflationary trend that is already underway. Now is the time to get our outlook.