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diverted the circular flow of payments between producers and consumers.
The main cloud on the horizon, Keynesians worried, was that people would
be so prosperous that they would not spend their money. Their prescription
to  deter this under-consumption was for economies to move in the
direction of more leisure and more equitable income distribution.

The modern dynamics of saving - and the increasingly top-heavy
indebtedness in which savings are invested - are quite different from, and
worse than, what Keynes hoped for. Most financial savings are lent out,
not plowed into tangible capital formation and industry. Most new
investment in tangible capital goods and buildings comes from retained
business earnings, not from savings that pass through financial
intermediaries. Under these conditions, higher personal saving rates are
reflected in higher indebtedness. That is why the saving rate has fallen
to a zero or "wash" level. A rising proportion of savings find their
counterpart more in other peoples' debts rather than being used to finance
new direct investment.

Each business recovery since World War Two has started with a higher debt
ratio. Saving is indeed interfering with consumption, but it is not the
result of rising incomes and prosperity. A rising savings rate merely
reflects the degree to which the economy is working off its debt overhead.
It is "saving" in the form of debt repayment in a shrinking economy. The
result is financial dystopia, not the technological utopia that seemed so
attainable back in 1945, just sixty-five years ago. Instead of a
consumer-friendly leisure economy, we have debt peonage.

To get an idea of how oppressive the debt burden really is, I should note
that the 6.9 per cent savings rate does not even reflect the sixteen per
cent of the economy that the NIPA report for interest payments to carry
this debt, or the penalty fees that now yield as much as interest yields
to credit-card companies - or the trillions of dollars of government
bailouts to try and keep this unsustainable system afloat. How an economy
can hope to compete in global markets as an industrial producer with so
high a financial overhead factored into the cost of living and doing
business is another story.

Reference: Jack Healy, "As Incomes Rebound, Saving Hits Highest Rate in 15
Years", The New York Times (June 27 2009). 
_____

Michael Hudson is a former Wall Street economist. A Distinguished Research
Professor at University of Missouri, Kansas City (UMKC), he is the author
of many books, including Super Imperialism: The Economic Strategy of
American Empire (new edition, Pluto Press, 2002) He can be reached via his
website, mh at michael-hudson.com

http://www.counterpunch.com/hudson06302009.html


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