Abundant savings in OECD countries: Two possibilities

Household savings are now highly abundant in OECD countries. Moreover, due to central banks’ interventions, they are to a large degree in monetary form. A significant portion of these savings is likely to be saved for a long time and not consumed , leading to two possibilities: The savings are invested in asset classes whose supply does not vary, merely leading to an increase in the prices of these assets (bubbles); The savings are invested in assets that finance additional investments, driving up the supply of these assets. It is important to understand that buying a share only finances the economy if a company issues one more share. If this is not the case, then there will merely be an increase in the share price. So t he additional savings are only useful if they lead to an increase in the supply of financial assets that finance the economy. Economic policy should therefore favour financial assets whose sale increases the financing of the economy (for example shares in private equity funds as opposed to equity ETFs).