December 1, 2022

Taylor Daily Press

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Extra Corona Savings Won't Protect US From Recession

Extra Corona Savings Won’t Protect US From Recession

U.S. households generated an astonishing $37 trillion in additional wealth during the pandemic, which could help boost U.S. consumer resilience. However, the Corona savings ended mainly with the wealthiest group of people. Because this group already had enough money before the corona, wealth accumulation does not translate into consumer spending as much as it would have otherwise. So additional savings provide little protection against a potential recession.

Net wealth inequality in the US remains high, but statistics show that additional corona savings have worsened inequality. By the first quarter of 2022, the highest earners owned two-thirds of the wealth, while the top one percent alone owned 40 percent. Meanwhile, a very small number of households own only three percent of the wealth, creating no additional wealth during the pandemic.

That accumulated wealth is not good for money flowing in the economy. High earners have enough income to meet their needs regardless of economic growth. Therefore, they usually store their wealth in less liquid assets like real estate and stocks. These assets are responsible for 70 percent of total net wealth growth during pandemics. As almost three-quarters of these assets are in the hands of high-income earners, there is additional wealth accumulation in these less liquid assets.

The limited wealth of an average family is now being strained. Low- and middle-income households are increasingly using their incomes to meet the rising cost of living, especially food and gasoline. The household savings rate fell to 5.1 percent in June, the lowest level since the summer of 2009. This means that the average American household has fewer and fewer resources to deal with high inflation, and thus they have to cut back on consumption. This partially removes this important pillar of economic growth, making a soft landing of the economy more difficult.

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