Monday, December 26, 2005

Running on Empty: US Savings Rate Officially at 0

The U.S. savings rate was officially put at 0 this year. Savings are being sacrificed to continuous spending on consumer items, driving a lot of our economic growth but weakening things associated with saving, like retirement security, education for one's children and home ownership. According to Federal Reserve Chairman Alan Greenspan's testimony to Congress on February 15 of this year:
The sizable gains in consumer spending of recent years have been accompanied by a drop in the personal saving rate to an average of only 1 percent over 2004--a very low figure relative to the nearly 7 percent rate averaged over the previous three decades.

The Bureau of Economic Analysis reported in 2004 that the 2003 personal savings rate of 1.4 percent was the lowest since 1938. In 1938, as we can recall, our country was struggling to recover from an economic depression. The fact that the current personal savings rate is lower than it was in the Great Depression is pretty astounding.

The blog I linked earlier points out that pensions and home equity figures aren't factored into savings rates, but it also points out that pension plans are being increasingly abandoned by companies. Home equity probably isn't the most reliable form of savings either, considering all signs are pointing to a current housing bubble that will burst in the next few years, and furthermore, it is not ideal to have to sell one's house to shore up one's savings.

I'm not sure why exactly consumerism is at its height even when people don't have the money, but I fear that our country's huge amounts of borrowing will one day result in some sort of disaster, like massive inflation to pay off the debt. For those of us in my generation who do save, some of our savings might be drained if there is massive inflation or if we are taxed to make up for the ever-increasing debt that the current administration is running up. If China, Japan, and Europe start taking their money out of the U.S., well, I don't want to think about it.

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