[MonteQuest]

So far in 2004 our consumption is up 2.8% while our disposable income is up only 1.8%. This was the sixth month this year that American personal consumption rose faster than American disposable personal income. And this is a trend that has been going on since the equity bubble popped in 2000. How is it, that with personal spending outstripping personal income, that people are able to continue to crowd into China-Mart? Where is the money coming from? What makes up the difference?

Well, for starters, we are spending every dollar that crosses our greedy little palms. In October 2004 the personal savings rate fell to a pathetic 0.2%, and so far in 2004 our personal savings rate stands at 0.88%. With the Christmas big-spending season upon us, I don’t see a snowballs chance in hell of it going over 1% by years end. So what, you say? The last time the US had a savings rate that low was in 1933, smack in the depths of the Great Depression. The efforts of US policy makers to avoid a full unwinding of the 1990’s stock market bubble through the creation of a easy-credit bubble and a housing bubble has, despite something of a recovery, made America’s underlying credit structure even more vulnerable to a precipitous withdrawal of foreign capital. America has to import $2.6 billion in cash every working day to keep these bubbles afloat.

We also got another good scam going that the economists dub an “asset-driven wealth effect". In short, Americans sell parts of their homes to mostly Asian investors, take the cash and buy gas-guzzling SUV’s back from them, or head to China-Mart for the next blue-light special made in our exported factories with our exported technology. Oh, that‘s right, K-mart is the one with the blue light…So long as the value of your house continues to grow exponentially and your ability to tap the mortgage market for ever-lower interest rates persists and those Asian investors continue to eagerly buy your “back porch and children’s bedrooms,â€

[Oilgood]

When is it all going to come to a head? The US seems to be literally living on borrowed time, so when will this madness end? You mentioned something about savings being as low as they were in the Great Depression. I was wondering: in terms of economic conditions, how is the US today similar or different from just before the 1929 crash? How is it similar or different from how it was circa 1933?

[0mar]

Eventually, the system unravels under the false pretenses. Then everyone in the US suffers deeply, save for a few elites (they always come out ahead somehow ).

I think the catalyst for change will be a Russian+OPEC move to euros for oil sales. Then, everyone will see that the emperor has no clothes.

[americandream]

Makes you kinda wonder where its all headed for?

[MonteQuest]

$this->bbcode_second_pass_quote('Oilgood', 'W')hen is it all going to come to a head? The US seems to be literally living on borrowed time, so when will this madness end? You mentioned something about savings being as low as they were in the Great Depression. I was wondering: in terms of economic conditions, how is the US today similar or different from just before the 1929 crash? How is it similar or different from how it was circa 1933?

[gg3]

To anyone with an ounce of small-business sense, taking second mortgages to pay for consumer goods is the height of insanity: diminishing a capital asset to pay for an increasing level of fixed and variable expenses.

The thing to do in any difficult economic times is exactly the opposite: cut the expenses, conserve the assets. I may not have an MBA, but I survived the dotcom crash, and a conservative approach to assets & expenses was a significant part of the picture.

[Colorado-Valley]

I've been saving every penny since 1990. I came from a Depression-era farm family, and it was honed into me never to borrow money and to save everything you can.

I'm certainly not poor now, but I do things like buy clothes from second-hand stores and drive fuel-efficient cars just because that's the way I was brought up. I remember the recession of 1980, when many people lost their homes and were living in station wagons searching the country for a job. This could easily happen again

When I see how carelessly people go into debt for silly stuff these days, I can only wonder where it's all going to end. It's insane how Americans who should know better totally lack economic common sense.

There's an old saying: Never be the lendee; always be the lender.

Nice post, Monte.

[Oilgood]

$this->bbcode_second_pass_quote('Colorado-Valley', 'T')here's an old saying: Never be the lendee; always be the lender.

[Specop_007]

$this->bbcode_second_pass_quote('gg3', 'T')o anyone with an ounce of small-business sense, taking second mortgages to pay for consumer goods is the height of insanity: diminishing a capital asset to pay for an increasing level of fixed and variable expenses.

The thing to do in any difficult economic times is exactly the opposite: cut the expenses, conserve the assets. I may not have an MBA, but I survived the dotcom crash, and a conservative approach to assets & expenses was a significant part of the picture.

[PenultimateMan]

Could it be that US policy makers have manage by hook or by crook to succeed in the long term (since 1970) goal of keeping the energy flowing here until the peak global oil production point passes? This situation is not at all like 1929 if you view it from a Club Of Rome point of view. Economics, Politics, etc, fly out the window and in comes The Reaper.

[stu]

$this->bbcode_second_pass_quote('Oilgood', 'W')hen is it all going to come to a head? The US seems to be literally living on borrowed time, so when will this madness end? You mentioned something about savings being as low as they were in the Great Depression. I was wondering: in terms of economic conditions, how is the US today similar or different from just before the 1929 crash? How is it similar or different from how it was circa 1933?

[Guest]

Anything that can't go on forever, won't.
-- (Ben) Stein's Law

Timing the Great Popping is a tough job. If you could do it, you could become very very rich. The way I look at it, every year it stays up there is another year I have to save, plan & prepare.

Our personal household savings rate is around 75% of my gross salary. It can be done, it's just not easy. (And yes I am married and yes we have kids, and no my wife does not work outside the home).

The other way I look at it is the GP will pre-sage the dieoff by about 10 - 12 years I figure.

Do you believe in PO or do you not ? Your actions speak a lot louder than the hot air here

[Free]

Hmmmm but might not people who are in debt now in the USA be the ones who laugh in the end? Because if there was a massive inflation the debts would become less worth...

I think inflation might be the only way out of the current situation the US has got itself into, and there are signs that the Fed is heading that way - no?

If otherwise - how is the US and the US households gonna pay back their debts ever? I dont think that will ever happen...

[oowolf]

I'm an economics ignoramus, but it appears to my high-school educated brain that the financial sector is our Achille's heel-nevermind the fact that we're toast on all points. Do I detect an attempt from the East to crash us monetarily? It wouldn't take much-as has been well pointed-out above. I'd like to hear more on this from someone with knowledge. Thank you all.

[MonteQuest]

$this->bbcode_second_pass_quote('oowolf', 'I')'m an economics ignoramus, but it appears to my high-school educated brain that the financial sector is our Achille's heel-nevermind the fact that we're toast on all points. Do I detect an attempt from the East to crash us monetarily? It wouldn't take much-as has been well pointed-out above. I'd like to hear more on this from someone with knowledge. Thank you all.

[scrod]

What follows is a surprisingly insightful and humorous commentary into American consumer culture by the pop rock artist Ben Folds:
AAC format; play in iTunes or WinAmp

[BabyPeanut]

70's ish Rock-n-rock, heavy on piano.

$this->bbcode_second_pass_quote('scrod', 'A')AC format; play in iTunes or WinAmp

[JoeW]

A non-scientific poll conducted by cnn.com today indicates that Americans are largely in favor of eliminating the income tax and replacing it with a consumption tax.

This goes to show exactly how stupid the average American is. They would rather pay thousands more in taxes than fill out a form that requires addition and subtraction, or pay $50 to have someone who knows how to add and subtract do it for them.

The majority of U. S. taxpayers fail to understand how the graduated tax system benefits them. No wonder we find ourselves tipping more and more toward government-of-the-people-for-the-wealthy-by-the-wealthy.

Many Americans would do no worse with a consumption tax, provided that certain items are not taxed (like food, medicine, clothing, houses, etc.). However, this over-simplified poll did not include these exclusions.

[maverickdoc]

Well Joe what about those American who watch what they consume?

isn’t it good for them

[JoeW]

$this->bbcode_second_pass_quote('maverickdoc', 'W')ell Joe what about those American who watch what they consume?

isn’t it good for them