Households have been drawing down savings as incomes stagnate. Savings can only fall for a period of time before people start cutting back consumption to rebuild those savings.
In 2007, just before the economy crashed, the savings rate had fallen to 2.0%. What followed was a pullback in consumption that weakened the economy and contributed to the overall downturn.
The savings rates is now down to 3.5% (down from a peak of 8.3% in May ’08). While 3.5% is better than 2.0%, unemployment is still far higher than it was in 2007, so it’s reasonable to think that 3.5% (or thereabouts) may be the new, 2.0%. Incomes have to rise from here for this trend not to become problematic.
http://www.bloomberg.com/news/2011-12-23/congress-passes-payroll-tax-cut-extension.html
ReplyDeletecongress just extended the payroll cuts....looks like we're "saved" for another couple months.
Even though they're all losers I do agree with what Harry Reid says here:
“I hope this Congress has had a very good learning experience, especially those who are newer to this body,” Senate Majority Leader Harry Reid, a Nevada Democrat, told reporters after his chamber’s action today. “It seems that everything we’ve done this past year has been a knock-down, drag-out fight. There is no reason to do that."
investment savings is a function of government spending
ReplyDeletemerry christmas
happy new year
felice hanukah