This must-read opinion by Richard Koo explains the impact US private sector saving — a staggering 8 per cent of gross domestic product — has on the US economy.
“….. if left unattended, the economy will continuously lose aggregate demand equivalent to the unborrowed savings. In other words, even though repairing balance sheets is the right and responsible thing to do, if everyone tries to do it at the same time a deflationary spiral will result. It was such a deflationary spiral that cost the US 46 per cent of its GDP from 1929 to 1933.”