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Monday, June 1, 2009

To Save or Not to Save? That is the question.

It looks like American consumers are salting it away. The U.S. personal savings rate surged to a 14-year high 5.7 percent in April, the U.S. Commerce Department announced Monday, as consumers took advantage of tax cuts to increase savings and build safety cushions in the middle of the worst U.S. recession in more than 25 years.

The record, nearly $800 billion fiscal stimulus package was designed to increase spending, but so far Americans have used most of their increases in real disposable income, including a 1.1 percent increase in April, to increase savings. The personal savings rate totaled 4.5 percent in March.

Real consumer spending fell 0.1 percent, its second consecutive decline and eighth decline in the past 11 months.
As savings rate goes up economic growth goes down. This inverse ratio effect is directly related to consumer spending. As a nation our greatest growth vehicle economically was based upon consumers spending money, not saving it. Why do you think that saving plans (other than a few well chosen retirement vehicles) were never given any tax deferral or tax deductibility? Even the powerful tax deferral vehicles such as annuities are being looked at by Congress as a potential revenue source. Before it is all over the government will reduce any and all tax deferral type vehicles as a deterrent to savings.

The Banks first made sure to addict the American consumer with debt vehicles in order to grow the retail industry (other wise known as consumer spending), you see it wasn’t enough to get you to spend all your earnings, the game was to get you into earnings for the next 20 yrs.
Now as debt consumes the Financial services industry from the inside out, we are all left with the results. The savings rate is not something that pleases the government, as the more you save then there will be less spending and debt consumption. Combine that with the overall deficit and debt spending the government has done and you end up with a healthy recession.
I await a political message that soon equates saving with a lack of patriotism. After all if you save then the government can’t get ahold of any of your dollars. And certainly if you are not debt spending then the retail industry is in trouble. The auto makers are simply the largest companies to suffer and show the pain of recession (of course their own mis-management and dependency upon the unions is what sent them packing) the retailers are lining up as this savings rate is counter to their numbers being good.
What an incredible conundrum, saving money directly stops the economy from growing and spending money brings individuals and their families closer to bankruptcy. What’s a citizen to do? Do some research on the Japanese economic implosion (you will find the saving rate was incredibly high) as see just how similar our conditions are right now in 2009!

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