No pennies saved, not much earned

How was 2005 like 1933? For the answer, look at your savings account

Published January 30, 2006 8:34PM (EST)

Last Friday's news that U.S. economic growth, as measured by GDP (gross domestic product), slipped to 1.1. percent in the fourth quarter of 2005 (the lowest in three years and dramatically lower than what economists had been predicting) has given fuel to those who believe 2006 could be a very bad year for the global economy.

But the positive spin also kicked in almost immediately. Treasury Secretary John Snow pooh-poohed the numbers, noting that he expected an "upward revision" in the near future and that the decline in GDP growth failed to represent the real strength of the economy. Supposedly, consumers started buying big-ticket items again, just at the close of the year, so the next quarter's stats might rebound.

A lot will be riding on those numbers. In the meantime, here are a couple of other things worth watching. For a truly apocalyptic scenario, one need only visit Forbes magazine, where columnist A. Gary Shilling outlines a potential free fall into a global recession. This will kick off with the ever-popular housing boom collapse, something that may already be on the way.

But to my mind, the really scary statistics are some numbers reported by the Wall Street Journal today: "personal income" rose 0.4 percent in December, while "personal consumption" rose 0.9 percent.

Americans have generally been spending more than they earn for quite a long time. We are a nation in debt, both personally and macro-economically. But last year, reports the Journal, "the savings rate for all of 2005 was negative 0.5 percent, the lowest annual savings rate since a decline of 1.5 percent in 1933."

1933! That would be the lowest rate since the depths of the Great Depression, when Americans were spending their last hoarded dimes in a desperate attempt to survive. That should give anyone pause. It's convenient to blame cheap labor in China for economic woes in the U.S., but the fact that Americans appear congenitally unable to spend less than they earn is a vice whose genesis is right here at home.

We aren't saving any money for a rainy day. When the storm does hit, it is going to hurt.


By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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