US Net Savings and Excess Bank Reserves

http://thesoundingline.com/chart-of-the-day-us-net-savings/

Instead of getting wrapped up in fancy terms like quantitative easing and large-scale asset purchases, I find it easier to think about extraordinary monetary policy from a savings standpoint. Distilled to its roots, the Fed has been manufacturing “savings” from thin air for the better part of a decade. When the financial crisis hit in 2008, American savings were depleted, so the Fed had to step in to produce savings (to finance huge government deficits). Now the Fed is attempting to remove that “savings” at a time when:

1. The private sector is experiencing falling savings.
2. The government is likely on the precipice of expanding its dis-saving in the form of greater deficits

Some data and charts will help explain the concept. In the Flow of Funds, released quarterly by the Fed, the relevant section to this discussion (out the 198 page report) is F.4 – Savings and Investment by Sector. Below is a clip from that table, highlighting aggregate net savings by sector.