What's the Biggest Threat to the U. S. Economy? A. Higher Oil Prices; B. A Prolonged Housing Slump; C. A Steep Rise in Personal Savings; D. A Big Hedge-Fund Failure
Samuelson, Robert J., Newsweek
Byline: Robert J. Samuelson
If you picked savings, go to the head of the class. For 25 years, Americans have been on a collective shopping spree, aided by a historic collapse of the personal-saving rate. In the early 1980s, U.S. consumers saved about 10 percent of their after-tax income; in 2005, the saving rate hit zero. A rapid rebound in savings could be devastating. Consider: Americans spend about $10 trillion a year. A jump in the saving rate to 5 percent would cut that by a massive $500 billion.
It seems strange to fear thrift, usually considered a private and public virtue. People save to buy a home, put kids through college and protect their retirement. By saving, nations lift their living standards through investments in new technologies, and more factories and roads. Still, the collapse of personal saving has clearly bolstered the economy.
It's served as an afterburner, as Americans spent more of their incomes or borrowed more. Since 2000, consumer debt, including mortgages, has increased a hefty 82 percent, to $13.4 trillion. The resulting stimulus to production and job creation has largely insulated the economy from repeated setbacks, from the puncturing of the high-tech "bubble," to higher gasoline prices, to big hedge-fund failures (Long-Term Capital Management in 1998; Amaranth in 2006) and the current housing slump. …