Cash crunched, continued
Justice Litle from Outstanding Investments picks up again on a theme the DR editors dealt with earlier this month: The rapidly-vanishing concept of "household savings." He passes along this article from the Associated Press:
People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.
The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.
The very next paragraph reveals something fascinating about the mindset of the mainstream financial media:
For December, consumer spending rose a solid 0.7 percent, the best showing in five months, while incomes rose by 0.5 percent, both figures matching Wall Street expectations.
The casual news consumer could be forgiven for scratching his head at this point. If Americans are saving more than they're spending, then describing a rising rate of consumer spending as the "best showing" in five months seems just a wee bit out of place. But that just goes to show the conventional mindset: More consumer spending = good economic news — even though Americans are sinking further and further into debt!
Whatever. The article goes on to say:
Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.
Whatever the reason for the low savings, economists warn that it the phenomenon exists at a particularly bad time with 78 million baby boomers approaching retirement age. Instead of building up savings to use during retirement, baby boomers are continuing to spend all their earnings.
The reporter treats those "various reasons" as somehow mutually exclusive, but they all in fact stem from the same root cause — too much money and credit sloshing around in the economy.
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