An oft-quoted phrase from the preamble to the United States constitution that is used to describe where power lies in a democracy is: ‘We the people’. In finance, an equivalent designation might be: ‘We the savers’. In non-communist financial systems, especially those with large stock markets, power finally resides with the masses who save, not the super-rich predators who exploit them.
One of the odd side effects of the global pandemic is that it was pretty good for savings. Trouble is, it has been largely based on a financial fiction, money printing. (Please note that the definition of ‘savings’ used here is my own and would no doubt offend many economists. What is meant is the various ways that money is stored, not just what people hold in their bank accounts. The reason for looking at it this way is to get a snapshot of the ‘capital’ part of capitalism, as opposed to the ‘ism’ part of ‘capitalism’ on which commentators mainly focus.)
In Australia, the biggest pool of savings is the $3 trillion in superannuation funds, which have transformed the financial structure of the nation. The super funds have done well during the pandemic, with the pool of funds now one of the highest levels in the world, equating with 132 per cent of GDP according to the OECD. Only the Netherlands, Switzerland and Iceland are higher and Australia has about four times New Zealand’s level and 65 per cent more than the level in the United States.
Unlike other countries’ pension funds, especially Europe’s, there is no risk that the Australian super pool is unfunded (a situation where the government promises to pay the pensions but ultimately does not have the money). Each individual owns the money in their super so it is, by definition, fully funded.
The COVID-19 crisis led to another positive for saving, a sharp rise in bank deposits. Australia’s total bank deposits were $US2.54 trillion in June, about 24 per cent higher than the average level over the last 17 years. Similar increases were seen around the world, with people stockpiling an extra $US5.4 trillion of savings since the coronavirus pandemic began. That extra saving very much benefited Australia’s domestic banks, which now get about 60 per cent of their funding from domestic deposits on which they pay almost no interest.
It has been a strange financial circus, just what critics of ‘fiat money’, who support a return to the gold standard