Secretary Geithner on Savings

Secretary of the Treasury Tim Geithner was on Meet The Press this weekend to discuss the state of the economy following last week’s announcement of actual growth in the GDP. The summary of his remarks basically boils down to “This is good news, but we’re by no means out of the woods. Oh, and stimulus=good.” Yet there are some interesting nuggets in the details of his remarks. For instance, the Administration continues to speak favorably about personal saving, and hint at more efforts to promote saving in the future.

According to the transcript, Secretary Geithner said:

“Well, again, I think it’s — it’s good news and it shows that, when you act with force, you can stabilize a crisis like this and, you know, start to repair the damage and bring things back.

But this is going to be a different recovery than the past, because Americans are going to have to save more. A lot of damage was caused by this crisis. It’s going to take some time for us to grow out of this. It could be a little choppy; it could be uneven; and it’s going to take a while. But I think, again, this is encouraging signs.”

The italics are mine, but I think it is notable that the Secretary of the Treasury is saying that “Americans are going to have to save more.” Of course, the Administration has taken some steps in the past to make that easier, but Secretary Geithner is going to have to do quite a bit more in order to make a large mark on the state of saving in the US.

Later in the program, Secretary Geithner describes the choices families are facing in these economic times:

“You — you’re seeing them do the rational thing now, David. You’re seeing Americans start to save again after a long period where people were not putting enough aside again the risk of a recession or a job loss. You’re seeing people start to save again, and that’s a healthy, necessary adjustment. It’s going to make sure that — it’ll help make sure that growth is more stable and more sustainable in the future.

It is refreshing to see this level of candor from the Treasury, and not a fallback to the type of pro-consumption cheerleading we’ve seen too often in the past. However, Geithner’s remarks provide a good opportunity to examine the state of savings in the US. Here are the Personal Savings Rate numbers from February until now:

We know for a fact that the April and May numbers were bumped by one time payments from the Government, and that the August numbers are deflated significantly by “Cash for Clunkers.” So if you take out the outlier figures, where do we stand? An average PSR of 3.5% or so? Is that enough? Does it signify a return to a culture of savings? Is it enough to provide for a more “stable and sustainable future?” I’m not an economist, but in my opinion we’re probably far short of where we need to be for that to happen.

President Obama today sounded similar themes, calling for a “post-bubble economic growth model” which is more “sustainable.” We’ve heard this before from the President, but I believe this kind of public commitment to saving is relatively new for the Treasury Secretary. Its coming time to ask what proposals we might see out of the Administration that has made so much of their commitment to saving. With all of this smoke, is there any fire? While it seems a long way off, perhaps we’ll see something big in the State of the Union and FY 2011 Budget Proposal?