What if - Gasp! - People start saving?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
A statistic that’s getting a lot of airtime these days is that 40% of Americans can’t cover a $400 emergency expense. We also hear constantly about people living from paycheck to paycheck.
And now those paychecks have been interrupted for 2% of the US workforce—in just one week.
That’s based on the 3.28 million new unemployment claims reported this morning. But this doesn’t include gig workers, contractors, or people cut back from full-time to part time. I’ve heard estimates for the unemployment rate at the end of March coming in at 20% or higher.
Of course, the powers that be (TPTB) are taking every opportunity to tell the public that this is according to plan, a temporary, voluntary pause in the economy to fight COVID-19. The Fed’s James Bullard won’t even call it unemployment; he says the jobs aren’t lost, but are a sort of a pandemic prevention holiday at government expense.
To their credit, many of the talking heads on financial media are pushing back. We’re seeing truly historic levels of disruption and chaos. The idea that this can blow over and leave no scars is literally incredible. Even reporters who are normally cheerleaders for government intervention are asking if it’s really possible for things to go back to normal.
They’ve yet to consider the possibility that the new normal before the crash of 2020 was neither normal nor sustainable.
I think ordinary citizens are, however.
And not just in the US, but all around the world.
At the very least, millions—if not billions—of people around the world are realizing that the global economy is much more fragile than they had thought.
It’s fully evident that people and businesses are changing their behavior and choices now. It’s a foregone conclusion that some of these changes, and more to come, will be permanent.
After all, the last global financial crisis was only 12 years ago. At that rate, most working people can expect to see one, two, or three more before they retire.
The smarter ones will worry that the current crisis could get much worse than TPTB are letting on—and that if TPTB do paper this one over, the next crisis won’t be 12 years down the road.
This brings me to my question: what if people in consumer-driven economies—the US in particular—start saving?
The very poorest people won’t be able to, of course. I know what that’s like, and I feel for them.
But many people live from paycheck to paycheck as a result of lifestyle choices. They could go out less—and after COVID-19, they just might. If the reports of American obesity are to be credited, many could stand to eat and drink less as well. A camping holiday is much cheaper than a cruise. And does anyone really need another painting of Elvis on black velvet?
People with money don’t even have to tighten their belts. It’s just a matter of preference. The stock market meltdown shows that many have already shifted their preference away from risk assets and toward savings.
That’s mostly ledger entries thought to represent funny little bits of colored paper, but the smarter ones are loading up on real money: gold and silver.
This move is so strong, there are widespread shortages in the physical market. It’ not going out on much of a limb to suppose that many wealthy people will maintain this preference for some time, and some will keep a higher preference for safer savings in their portfolios going forward.
The same goes for businesses. Absent government bailouts, using cash to buy back shares rather than build up balance sheet savings has turned out to be a fatal error for many corporations. The airline companies are the poster child on this score, but the issue is a fiscal and public relations fiasco for all of corporate America. Even if government didn’t impose more prudent behaviors on such companies in exchange for bailouts, I don’t think it’s much of a stretch to think many companies will start saving more going forward.
If I’m right about this behavioral shift, it will have a significant economic impact on economies that depend on people spending, spending, spending as much and as fast as possible.
That much is baked in the cake. The real questions in my mind are: how many people will start saving; and how much will they try to save?
If we see a generational attitude shift as we saw when the Roaring ‘20s gave way to the Great Depression, it would be hard to overstate the economic consequences.
Even if it’s only a small change for now, I think TPTB will have their hands full trying to keep consumer economies afloat.
But let’s say they do. The shock of a marginal increase in preference for savings among the entire population might be absorbed if spread across the entire US economy. Great. But what about a marginal increase in preference for real savings—gold and silver—among the population? What happens if it’s not just gold bugs, but ordinary people who start getting the idea that socking away a few silver dollars or gold bullion coins would be a prudent thing to do?
Given how very tiny the entire gold market—which dwarfs the silver market—is compared to the US economy, such a move would blow the lid off of gold and silver prices.
That move itself could spark a mania.
I can’t promise that outcome.
I’m not going to forecast some made-up gold price target.
But I will say that new nominal highs in gold and silver are the least of my expectations.
And that’s just based on the money-printing going into overdrive around the world—without any cultural shift toward gold and silver.
That said, I do think this cultural shift is coming. It may start slow and it may not start right away, but I do think it’s coming.
Those little bits of colored paper people have been fooled into believing in are soon going to seem a lot less funny.
That’s my take,
P.S. To be kept abreast of more dangers, opportunities, and issues affecting us all, please sign up for our free, no-spam, weekly Speculator’s Digest.