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In other news

The U.S. individual savings rate is negative for the first time since 1933 (in the throes of the Great Depression). Which means that those of us who are putting any money at all in the bank are saving at a rate that is infinitely higher than the national average of -0.5%.

A 1-30-06 MSNBC article has details, and a 1-13-2007 Japan Times article confirms that this is still so, a year later.

In farming we call this activity eating your seed corn; it is a short-term strategy with very bad long term consequences. The signs are there for all to see that the economic road ahead will not be smooth:
  • An over-valued real estate market is now rapidly cooling, meaning much paper wealth is evaporating
  • Many people have leveraged themselves to the hilt with debt, based on the assumption of that paper wealth -- doing things like 'interest only mortgages' (or worse), maxing out home equity loans, and spending down their savings on consumer goods.
  • The federal budget deficit has ballooned again. Feeding continuing deficit spending will continue to soak of investment capital that would otherwise support productive economic activity. Paying for the existing debt will either drive up taxes or divert money away from other programs. The Baby Boomers impending retirement threatens to blow the lid clean off Federal entitlement programs.
  • Due to the Global War on Terror and Bush's Iraq military misadventure, our military costs are spiraling. It's useful to know that President Clinton cashed in the 'peace dividend' from the end of the Cold War to bring the budget into balance in the '90s.
  • The dollar is overvalued; the Euro is sharking around to unseat the dollar as the world's primary currency, and China, our biggest source of foreign goods, keeps (as a matter of government policy) their currency grossly undervalued in order to stimulate exports.
  • The US has an absolutely staggering trade deficit.
...That last item is something the Chinese should be familiar with, at least from their history books. The colonial powers bled China dry during the 19th century through lopsided trade, contributing to the collapse of the Manchu dynasty, and ultimately the rise of the current Communist government that is working to bleed us dry.

None of this is sustainable. The bill will come due for all of our deficit spending and imbalanced trading. We will run out of things to mortgage to finance new government debt, and we will run out of things to sell to foreigners to finance our import-based consumption. Some economists have cautioned that an Argentina-style economic implosion is a distinct possibility for the US.

Oh, and to throw in one more bit of history here ... in amongst the decadence that was the late Roman Empire, it was massive escalation of military spending that historians credit for breaking the empire. Just thought you might want to know.



( 7 comments — Leave a comment )
Jan. 13th, 2007 04:29 am (UTC)
So, what you're saying is: You're feeling optimistic today?

Jan. 13th, 2007 04:38 am (UTC)
It's the negative savings rate that pushed me over the edge.

I was composing an email to Asha about the current (very expensive) state of the household finances. I've had to dip into savings to cover some of the extras -- like plane tickets to India -- but was reassuring her that for 2006 we still put aside more than our planed amount. Being a complete geek I did a quick Google to see what the current individual savings rate was.

I was expecting to see the usual piddly 1.5 - 2%. I was expecting to make some smugly superior comment to Asha about how we're still doing a lot better than that. I was completely unprepared for the news that Americans have been emptying their bank acounts for going on two years now.
Jan. 13th, 2007 06:05 am (UTC)
We're good spenders, but we also save like hell.

And those tickets to India? Perfect reason to dip into savings. You saved just for something like this.
Jan. 13th, 2007 02:25 pm (UTC)
You saved just for something like this.

Yeah, I know. When I was growing up, savings accounts were treated like roach motels: money went in -- it didn't come out. It left an impression! :-)
Jan. 13th, 2007 07:10 pm (UTC)
It's clearly the Yankee-saver in you. Given the infrequency that my parents removed money from savings, I still have a hard time trying to nail down exactly the conditions under which I'd ever take money out of our savings. It's a value that gets passed down, I think.
Jan. 14th, 2007 04:03 pm (UTC)
Indeed. And I'd rather have this set of traits than be completely unused to the concept of savings!
Jan. 15th, 2007 04:17 am (UTC)
I'm also pretty much debt-averse/savings-heavy. (As in "automatic transfer each month to the almost never touched savings account, tax-deferred retirement plans, pay extra principal on mortgage each month".)
( 7 comments — Leave a comment )

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