Opinion
Falling U.S. Savings Rate Portends Disaster
By Jeff Nielson 11/14/11 – 03:50 PM EST
NEW YORK (TheStreet) — By now, most readers should be familiar with the way the mainstream propaganda machine “spins” the news. When the U.S. savings rate experienced a short, sharp jump higher in response to the Crash of ’08, media talking-heads saluted a “new generation of thrifty Americans,” whose savings would finance future economic expansion.
Now, with that savings rate having suddenly plummeted again, the propagandists are crowing about how this means “more consumer spending.” What’s truly remarkable about these media pundits is that they will argue either side of the same issue — and yet manage to be wrong both times.
With the simplistic, sound-bite analysis we get from the mainstream media, one of the most elementary aspects of statistics is never explained to readers: they are aggregate numbers. In other words, if we were to say that the U.S. had a savings rate of 2%, this would not mean that everyone was saving 2% of their earnings. Rather, once we averaged out the different savings (or spending) rates of each individual American they would average 2%.
By applying existing economic parameters to these numbers, however, we can engage in a more sophisticated level of analysis. If we flash back to the peak of the U.S. housing bubble, the U.S. economy had managed the dubious achievement of a “negative” savings rate — i.e. the U.S. population as a whole was saving less than zero.
This did not mean that all Americans were depleting their savings. Those at the very top rarely cease their relentless hoarding. During the peak of the U.S. housing bubble they were raking in trillions of dollars and squirreling it all away. Despite that massive savings, the rest of the population was in the most reckless spending binge in history, dragging the aggregate number below zero.
What makes this episode such an economic abomination is that for most Americans they were not spending “savings” – they had already depleted their savings. Rather, a large segment of the U.S. population with virtually no savings was leveraging themselves deeper into debt.
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