FHN Financial, a fixed-income trader that tracks cash flow, estimates that US households and small businesses have hoarded a record nearly $17 trillion in cash, an incredible number because it exceeds the amount of fiscal action taken by governments around the world to keep the global economy running during the outbreak ($16 trillion).
Before the outbreak in February last year, US households and small businesses held less than $12 trillion in cash.
Said Jim Vogel, manager of FHN Financial in Memphis. Domestic cash reserves have grown exponentially since February 2020 for three reasons: the government gives stimulus money directly to individuals; Americans consume less and save more as a result of working from home; and small businesses decide to retain subsidies or loans.
Given that American households and businesses tended to draw on their savings in the two or three recessions before the outbreak, the amount of cash they now hold is surprising.
The novel coronavirus pandemic has triggered a two-month deep recession in the US since February 2020, but this time the difference is that savings have soared despite the reopening of the economy.
There are two reasons for this: small businesses seem to be focusing on rebuilding inventories to prepare for pent-up demand, while individuals choose not to spend money on more restricted services and experiences, a restriction that has become the norm.
"it's an unusual sign of the economy," Vogel said. "there are a lot of people making money or saving money but not spending it. The coin has two aspects: many people are doing well, while some people who rely on these expenses are not. The longer the imbalance persists, the longer it will take to restore the balance. "
The FHN Financial's estimate of about $17 trillion exceeds the scale of fiscal action taken by governments around the world to prevent economic collapse during the outbreak. According to International Monetary Fund (IMF) estimates in July, the total size of these fiscal actions reached $16 trillion.
Mr Vogel said his company had come up with an estimate of nearly $17 trillion after using the latest money supply data released by the Fed last Tuesday and stripping out demand deposit estimates in corporate and institutional money market accounts. That figure has increased by about $250 billion in the past three months, subverting his expectations that it will decline this quarter.