Original title: American households have saved 3.5 trillion dollars. What are they waiting for?

Although the US personal savings rate has fallen sharply in recent months from a post-epidemic record of 34 per cent, the total quota remains high.

With the related fiscal and monetary stimulus from the US government and central bank, the US personal savings rate has surged significantly over the past 15 months, and Bank of America economists point out that one of the biggest unknowns in the next few years, is where these liquid savings accumulated by American households will go.

First of all, the key question is, how much excess savings are there now?

Bank of America has proposed three measures.

The first is to start with government spending-some stimulus cheques issued by the government may be stored by healthy families. The figure calculated by this method is very small-less than $1 trillion. The unreliability of this approach is that people's savings are affected not only by checks actually issued by the government, but also by the influx of stimulus money into the market, as well as restrictions on spending on services, which can also affect people's savings.

The second way is to compare the actual monthly savings with the normal ratio of about 8% before the crisis (see chart below).

By that standard, there were about $2.3 trillion in excess savings as of May. What is striking about this chart is that savings not only grow rapidly with the introduction of new stimulus policies, but also remain at a fairly high level between the old and new stimulus policies. For example, although the service sector opened up in May, the effect of the stimulus measures in March gradually faded, and the savings rate remained at 12.4%. Clearly, given the government's "generosity", spending may need to increase further in order to prevent excess savings.

BofA itself prefers the third measure: the amount of excess money accumulated in bank accounts. This indicator compares the actual M2 (cheques, savings, money market funds, etc.) with the historical trend of M2.

As the chart above shows, there was an excess M2 of $3.5 trillion as of May, the vast majority of which was held by families.

Why pay attention to this indicator? Because BofA thinks it shows how American households think about accumulating savings. They simply leave their money in the bank, rather than redeploying it to other forms of illiquid savings. BofA economists point out that they are saving money "for a good opportunity" and keeping it handy so that they can spend it when the economy reopens.

It is worth noting that even though Americans save trillions of dollars, they are not restrained in spending at the same time. The latest consumer credit and debit card consumption data from JPMorgan Chase show that consumption trends are almost 20% higher than they were two years ago (the main purpose of the comparison is to eliminate the base effect. )

How to understand the surge in consumption?

Economists usually look at consumer spending from two angles. On the one hand, they believe that "income" flows will stimulate consumption, and the degree of impact will vary according to different household conditions, with an impact of 100% on low-income families and 70% on middle-and high-income families as a whole. On the other hand, consumption is a process in which "wealth" is slowly used.

But in BofA's view, understanding today's excess liquidity savings requires a different perspective: they are not income or wealth, but a source of money to make up for lost time. It is impossible to make up for the restaurants, tourism, entertainment and so on missed by the epidemic soon. What one can do, however, is to first use the cash to return to normal spending and then fund high spending over a longer period of time in discretionary consumption.

BofA predicts that these high savings will mean a surge in inflation over the next two to four years, and the impact of economic reopening and fiscal stimulus over the past year will not dissipate soon. On the contrary, they will lead to a long period of high consumption, which will lead to high inflation. As a result, the consensus in the Bloomberg survey is that consumption growth will be 8.0 per cent in 2021, 4.1 per cent in 2022 and 2.3 per cent in 2023, while Michelle Meyer (Michelle Meyer) and her team expect higher growth of 8.8 per cent, 5.1 per cent and 2.8 per cent respectively over the same period.

It is important to note that even by 2023, the surge in excess savings may not stop completely, which means that there may be 4% or 5% inflation in 2024, which raises the question: if the Fed's temporary inflation theory is found to be wrong, how will the Fed's credibility recover from this catastrophic outcome?

Time will tell us the answer.