High Savings Mean High Risk Aversion

The FT reported this astonishing statistic:

Households around the globe accumulated the excess — defined as the additional savings compared with the 2019 spending pattern and equating to more than 6 per cent of global gross domestic product — by the end of the first quarter of this year, according to estimates by credit rating agency Moody’s.

The article goes on to argue that some of this “additional savings” will be spent because it is assumed that savers are beginning to be optimistic about the future and therefore will be more inclined to spend. Yet this assumption is problematic because nowhere in the article does it hint of the impact that such spending will have in the general price level: higher demand will lead to higher prices, all things being equal. And higher inflation lead to higher risk premiums in market prices. Should inflationary pressures show up, that will lead to a disorderly unwinding of financial transactions because of the risk of runaway inflation. It is a mistake by the FT to simply look at one side of the equation and come up with half-baked conclusions and not fully considering the implications.  

That being said, I think what the FT describes is too optimistic. Savers are savings because they are not as sanguine about the future as we are led to believe. Additionally, as the article goes on to mention, some believe that in the US “excess savings were held by the richest 40 per cent of the population and suggested this could hold back the scale of the economic boost because ‘high-income households will hold [rather than spend] the bulk of excess savings’”