Click for Full Size

Well, I just got off the phone with Summers and he says, “Wollin, it’s all your fault; you’ve got to stop telling people to save their money. The savings rate has gone up 300% from a year ago. You’re turning everyone into ‘terrorist savers’ – we’ll never get this economy on its feet again unless we get people to spend.”

“Larry,” I said, “that’s Aunt Toby to you and all those dismal boneheads over at Treasury; you guys got the credit gravy train for the last 8 years – the last time we had savings rate higher than it is now was in the 3rd Quarter of 2001 – and that was because everyone was so spooked and depressed from 9/11 that they didn’t buy anything – but they certainly listened to Bush in the 4th Quarter.

Personal savings by quarter

Wow – the savings rate just crashed that quarter. But I’m not sure it’s so patriotic to just go out and spend, especially for all those people who don’t have any jobs.”

“Well, they need to spend.” And he hung up the phone.

There are a lot of folks out there, certainly smarter than I am about this stuff who believe that everything would be just economically ‘hunky dory’ if consumers would go out and start flashing the plastic…again. Take a look at the graph at the top – that’s using data from the folks at Bureau of Economic Analysis – and it shows what’s been happening for the past couple of years.

As scary as that 4th Quarter 2001 savings rate is, check out 2005 and 2006 – see those measures that go below the line? That’s negative personal savings – that means people were doing things like pulling money out of savings accounts, selling stock, etc. etc. to pay bills with. It’s also a huge indicator of the crushing nature of the sheer mountain of consumer debt that households in this country are carrying.

That debt (which as you can see, really started to take off in the 1980s when consumer credit was loosened up by the changes in the banking laws – see how personal savings just went downhill from there) was the fuel of the past 25 years of the economic steam engine. But, let’s go back to that negative savings figure in 2005 and think about the big picture – let’s get a little bit of historical distance on this.

Check out the graph at the top again, which is from a longer period:

See that stuff at the left – the last time we had negative savings like 2005 and 2006 was…1933. Cue the theme music from “Jaws”.

Now, with what we know about people’s personal incomes (that they’ve been stagnant and in the toilet for a very long time now), it’s certainly interesting that somehow, ‘less buying power’ and ‘fewer dollars in the pay envelope’ came together with ‘gotta save more’ starting in the 2nd quarter of last year. Also, please note what happened in WWII – people were working but had no consumer goods to buy – shoot, they were on gas and other rationing, so they couldn’t even buy gas to put in a car to go anyplace. So the only thing they could do with their pay was to save it.

Again, I’m not an expert except what happens at my kitchen counter at Chez Siberia on the Susquehanna, but I can tell you this: When people start to feel threatened, they go into instant squirrel mode and start socking away every penny they can lay their hands on. The instinctual thing to do is definitely to put away the plastic and start taking lunch to work. If Congress wants the wheels of the economy to start rolling (and they are practically stopped right now, so it’s going to take a whole lot of grease and force to get this baby off dead center), they have to do things that are going to get money into people’s hands: good paying jobs, infrastructure jobs, business loans, start up loans, and so on. Just giving people money…or giving tax credits (which is sham money) is not going to get the economy moving..and it’s not going to get people to reach into their pockets and start spending again.

And Larry – I never told people NOT to spend; my message is always to choose wisely about what to spend one’s money ON. So there.

Oxdown Diaries

Oxdown Diaries