Ah, what a party we threw ourselves. Future generations will look back at this one with such scorn, such disgust. Who were these people, they'll wonder, that didn't save, spent future generations money, and bought themselves Hummer H2's, McMansions, exotic vacations and lived significantly beyond their means?
After any great party, the bills eventually come due. I think the bill is in the mailbox and most folks have no idea...
Americans' personal savings rate dipped into negative territory in something that hasn't happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.
The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.
The savings rate has been negative for an entire year only twice before _ in 1932 and 1933 _ two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.
One major reason that consumers felt confident in spending all of their disposable incomes and dipping into savings last year was that a booming housing market made them feel more wealthy. As their home prices surged at double-digit rates, that created what economists call a "wealth effect" that supported greater spending.
The concern, however, is that the housing boom of the past five years is beginning to quiet down with the rise in mortgage rates. Analysts are closing watching to see whether consumer spending, which accounts for two-thirds of total economic activity, falters in 2006 as Americans, already carrying heavy debt loads, don't feel as wealthy as the price appreciation of their homes would seem to indicate.
January 30, 2006
Posted by blogger at 1/30/2006