Safe Refuge

Do you remember when we used to dance
And incidents arose from circumstance
One thing led to another we were young
And we would scream together songs unsung
--Asia

During the 1920s folks took large amounts of speculative risk. They bought stocks, real estate, lots of consumer goods. And they did this with borrowed money. And the Twenties roared...

Then came the inevitable bust that follows leveraged spending. Leverage works both ways, and when prices fall insolvency can arrive pretty quick. Catastrophic losses transformed many speculators into frugal penny pinchers for the rest of their lives. Austerity became the norm for this generation.

We're seeing some behavior reminiscent of the Depression generation. Folks who haven't saved in years (perhaps in their lifetimes) are trying to sock money away in significant size. They're also swearing off risky assets like stocks in favor of savings accounts and CDs.

Like all natural systems, markets seek balance. When behavior extends too far in one direction, opposing forces nudge (shove?) behavior in the other direction to correct the imbalance.

Whether the current saving phenomenon becomes a secular trend similar to the 1930s remains to be seen. Should it stick, then policymakers hoping to jack the economy by reviving old borrowing and spending habits will be pushing string.