As rising price levels continue to pressure American families, many appear to be dipping into their savings to cover added costs.
As inflation outpaces gains in income, Americans are spending beyond their means to cover their expenses. Households saved a slim 4.4% of their after-tax income in April — the lowest level seen since 2008, according to a Bureau of Economic Analysis report released on Friday. Meanwhile, Federal Reserve data indicate that balances for credit cards and similar types of debt soared at a 35.3% annualized rate in March — the fastest one-month surge since 1998, according to The New York Times.
A fundamental reality in economics, however, is that a lack of savings renders investment impossible. David Bahnsen — the founder of Manhattan-based wealth management firm The Bahnsen Group — told The Daily Wire that long-term economic activity is threatened by the low rate of savings. “Investment is the precondition for productivity, which is the precondition for growth. Therefore, declining savings means declining growth,” he explained.
“We cannot ever invest a single dollar that is not first saved; all invested dollars are first saved dollars,” Bahnsen continued. “If one believes that greater investment will feed greater productivity, then one must favor greater savings, which is the sine qua non of investment.”
President Joe Biden sympathized with families facing higher prices in a Monday opinion piece for The Wall Street Journal. “Americans are anxious. I know that feeling. I grew up in a family where it mattered when the price of gas or groceries rose,” Biden wrote. “We felt it around the kitchen table. But the American people should have confidence that our economy faces these challenges from a position of strength.”
Bahnsen added that Americans have not yet cut back on spending due to inflation; rather, they have only changed the composition of their spending.
“The decline in the savings rate reflects the ‘roll-off’ of savings impact from the government transfer payments of just over a year ago,” Bahnsen said. “The credit card use increase reflects the reality that temporary government ‘stimulus’ becomes permanent American spending very easily.”
Biden met with Federal Reserve Chair Jerome Powell on Tuesday in an effort to support the central bank’s moves to roll back its monetary stimulus. The Fed hiked interest rates by 0.5% earlier this month — the largest rate increase since May 2000 — in an attempt to curb rising price levels. The move followed a 0.25% rate hike from near-zero levels two months ago.
However, Heritage Foundation research fellow EJ Antoni told The Daily Wire last week that “there is very little reason for consumers to think that price increases will somehow stop.”
“We have seen wholesale inflation — the prices businesses pay — outpace inflation at the consumer level for every month of Biden’s presidency,” he commented. “There are tremendous costs that have yet to be passed on to consumers, meaning much more inflation is already baked into the cake.”
As energy prices continue to rise, the new expenses will “trickle down to all goods and services across the economy, putting additional upward pressure on prices in the coming months,” Antoni added.
Indeed, Monday marked the highest Memorial Day gas prices in more than a decade, according to data from AAA and the U.S. Energy Information Administration. Prices at the pump hit $4.62 per gallon on Memorial Day 2022 — 53% higher than the $3.03 per gallon on Memorial Day 2021 and 136% higher than the $1.96 per gallon on Memorial Day 2020.
Even before COVID-19 and lockdown policies suppressed driving demand at this time two years ago, gas prices were roughly $2.85 on Memorial Day 2019 — meaning that today’s prices are 62% higher than equivalent pre-pandemic levels.