The inflation-adjusted U.S. savings rate could soon go to zero, creating a long-term concern for the health of the economy, a Yale economist said.
“Given this deficit spending, our savings rate is going to go to zero adjusted for inflation, and that’s going to push us into a realm of wider current account and trade deficits,” Stephen Roach, Yale University senior fellow, said Tuesday on CNBC’s “Squawk Alley.”
“The way I look at the fundamentals is they’re extremely fragile, and we’re kidding ourselves every time there’s a correction to say, well the economy is sound,” Roach said. “It is not sound at all when seen through the lens of low savings.”
PresidentDonald Trump signed a $320 billion spending deal Friday, and his administration released a budget plan Monday that would result in accumulating deficits of $7.2 trillion over the coming decade.
“Through no fault of the Trump administration’s they inherited a U.S. economy with a very, very low savings rate. The mistake they’re making is embracing deficit spending in a way that will take that savings rate even lower,” said Roach, formerly chairman of Morgan Stanley Asia and the firm’s chief economist for the bulk of his 30-year career at the financial giant.