The End of I.O.U.S.A.?

For the first time since at least the Second World War, Americans are acting like…well…everyone else.

Americans are spending less this year than they did in 2008. Believe it or not, that’s a first since World War II. What’s more, we’re saving at a historic clip… the personal savings rate (updated Friday) jumped from near 0% last year to 5.7%, a 14-year high and the fastest growth rate since at least 1950, when the government started keeping track. Check it out:


“We believe this is crucial to household balance sheet repair,” says our macro-man Rob Parenteau, “but it can only continue if some other sector of the economy is willing to reduce its net saving or increase its deficit spending. Otherwise, in a dynamic sense, saving by one household simply leads to income shortfalls and dissaving elsewhere.

“Contrary to the textbook story, intended saving does not automatically provoke planned investment, even with interest rates lower. With the monthly trade deficit improvement beginning to stall as U.S. consumption and production stabilize, the only other sectoral source that can support higher household saving besides fiscal deficit spending is higher business reinvestment rates, but that is probably a good year out from now.

“At best, then, we can hope the gross personal saving rate stabilizes near current levels until business investment revives. In the meantime, it all hangs on fiscal stimulus getting traction.”

The Daily Reckoning