Americans Now Spend More Than They Earn

The Chicago Tribune recently reported that the personal savings rate of Americans dipped into negative territory during 2005, something that has not happened since the days of the Great Depression.

The Commerce Department reported this past January 30th that the savings rate fell to minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but also had to dip into previous savings or increase borrowing.

The savings rate has been negative for the entire year only twice before, in 1932 and 1933, years in which the country was struggling to cope with the Depression, a time of massive business failures and job layoffs. Americans exhausted their savings to try to meet expenses in the nation's worst economic crisis.

One major reason that consumers felt confident in spending all of their disposable income and dipping into savings last year was that a booming housing market made them feel more wealthy, and that in turn supported greater spending.

But analysts cautioned that this behavior was risky - at a time when 78 million Americans are on the verge of retirement.

According to David Wyss, chief economist at Standard & Poor's in New York, "Americans seem to have the feeling that it is wimpish to save. And while the right idea is to put money away for old age, we (as a Nation) are just not doing that."

Ed Note: In light of reports such as the above, one has to wonder exactly where our economic "ship-of-state" is truly headed!

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