The Effect of Lowering Credit Standards on the Savings Rate

If the investment rate doesn't go up, the savings rate must go down. One way is it could strengthen the US dollar - that reduces savings and increases consumption. When tons of money pour into your country, banks have to respond by lowering credit standards. By lowering credit standards, you increased household borrowing, which is negative savings. Other things could happen. As money comes into the country and we see this over and over again, you typically get real estate booms and stock market booms. That's when you have the so-called wealth effect. And so when you feel richer, you tend to save less for your retirement,. So they increase their consumption,you reduce your savings. These