Deleveraging the future – a bit more on the household savings rate

Courtesy of Mish, I just found a great chart that shows the economic behavior of American households as it pertains to savings. What I love about this graphic is the recognition that the 0% savings rate also occured at the moment of peak credit. When you’ve got access to all manner of liquidity, you are less likely to perceive the need for your own stockpile of liquid cash. And when the crash comes, you’re likely to go the other direction.

The main takeaway here is that we are in a period of deleveraging that may continue for years to decades. Households are leveraged, banks are in hock, the country is in major debt. Only two choices remain: get out of debt, or spin further into the fantasy world of fake money. Only countries have the right to make the latter decision – the rest of us have to start putting some black ink into the ledgers.

How do you think the deleveraging market will change your strategy?