America's Savings Rate

One day the bill is going to come due and all our borrowing is going to cause a nasty downturn. Pete Petersen, Paul Volcker, and Bob Rubin are all concerned about a bad economic correction in the near future.

This is from today's Financial Times Article
In May Americans had been savings 40 cents for every hundred dollars of disposable income. In June the savings rate fell to 0 cents - the lowest rate on record except for one month in 2001 when the rate turned negative.

Wage growth remained relatively weak at 0.2 per cent - suggesting that salaries are still falling short of the rising cost of living.
"Households may be comfortable with saving nothing while they see big increases in housing wealth, the housing market will eventually weaken," said Paul Ashworth, an analyst at Capital Economics, a consultancy. "This will force households to start saving again using traditional means, leading to a potentially sharp slowdown in spending."
This is from the June 23 Economist
IN THE late 1990s The Economist's favourite gauge of America's bubble economy was the private sector's financial deficit (also known as private-sector net saving). This is the combined saving of households and firms minus their investment, and it nicely summed up why we believed America's boom was unsustainable.

(...)

Analysis by the Bank for International Settlements has shown that whenever a country's private-sector net saving swung sharply into deficit in the past, it was almost always followed by a deep economic downturn as the private sector was eventually forced to slash spending, reduce debts and move back into surplus. America, however, escaped with a mild recession, thanks to a generous easing of monetary and fiscal policy.

(...)

Usually, in a balanced economy households as a group have been savers, while firms borrow to invest, and thereby boost future output and income. As net borrowers, American households can bring forward spending from the future. The snag is that by consuming ever more jam today, rather than saving and investing, America may be left with only dried bread tomorrow. Keep watching this chart.

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