Americans tightening belts at wrong time?

[Auburn85 438]

http://news.yahoo.com/s/afp/20090203/ts_al...j7pHBsMy3rv5rEF

by P. Parameswaran

WASHINGTON (AFP) – A deepening US recession is forcing spendthrift-Americans to save but adopting the new habit at the current stage of a sharp economic downturn may boomerang, experts warn.

US consumer spending contracted in December for the six consecutive month amid shrinking incomes as Americans tightened their belts following large job losses and downsizing by firms to cope with tough times, the latest government data showed Monday.

At the same time, data from the Commerce Department showed personal savings jumping to 378.6 billion dollars in December from 299.1 billion dollars the previous month despite the lure of tumbling prices for gasoline and other retail products.

Personal savings as a percentage of disposable personal income rose to 3.6 percent in December compared with 2.8 percent in November, the department said.

"Except for a few isolated months, the saving rate has not been this high since early 1999," said Scott Hoyt of Moody's Economy.com.

"Consumers are concerned about rapid job losses, declining wealth, and limited access to credit," he said.

The average American's savings rate is projected to rise even further as President Barack Obama embarks on a massive spending binge -- he has sought congressional approval for a stimulus plan costing more than 800 billion dollars -- to jolt the economy from a slump unseen since the Great Depression.

"Our forecast is that the savings rate will rise to around five percent by the end of 2009 -- based on the loss of wealth from falling equity and home prices -- and considerable progress to this end has already been made," experts at RDQ Economics said in a report.

They expect consumers to save much of the proposed two-year tax cuts in Obama's stimulus plan, raising the savings rate by close to a further percentage point in 2009.

"Consumers have been saving the improvement in real purchasing power as they try to recover from significant losses in wealth and face ongoing uncertainty about their future job prospects," said Julia Coronado of Barclays Capital.

Some experts say the new thrift habit is a welcome sign as the United States has been consuming more than it produces and has chalked up more than a trillion dollars in budget deficit and more than 10 trillion dollars in debt.

It will also be critical in addressing global imbalances, in which the United States and many Western nations are burdened with deficts while Asian nations led by China have massive surpluses on the back of high savings.

But others argue that current US troubles -- particularly negative economic growth on the back of falling prices -- require a massive spending boost to jolt the economy from deep slumber.

"The concomitant rise in the saving rate, now at 3.6 percent compared to 0.8 percent in August, is good news in the long run but the key source of pain right now," said Ian Shepherdson, chief US economist for High Frequency Economics.

Higher savings could further dampen consumer spending -- which accounts for about 70 percent of US economic activity -- and also induce deflation, a period in which prices decline on a sustained basis making consumers delay purchases because they expect prices to fall even more.

Consumer prices for the whole of last year were virtually flat -- a mere 0.1 percent rise -- from 2007, the lowest growth figure in half a century, highlighting plunging demand.

"Core inflation has now vanished, with prices essentially flat for three months in a row. That will ring deflation alarm bells at the Federal Reserve," said IHS Global Insight chief US economist Nigel Gault.

While the bad news is that American households have stopped spending, the good news is that by saving more, they are getting their finances back in order so they can spend once conditions start to turn, said Joel Naroff, chief economist with Naroff Economic Advisors.

"Economists have argued for years that the overextended consumer would eventually have to cut back and that time has arrived," Naroff said.

"There is the upside that a less debt-burdened consumer will be able to lead the way out of this mess."

[Bottomfeeder 244]

What the heck do they expect? Do they wish confidence levels to rise after the bloodletting of all 401Ks and pension plans? Or, do they expect us to spend our money paying for items made in foreign communist countries? What about shrinking govenment revenues caused by pressure on wages as a result of NAFTA and the outsourcing of high paying jobs? What about wars that are started on false pretenses that result in deficit spending by liberal republicans and democrats? What about the confidence is the Federal Reserve Note as the world's reserve fiat currency?

It's all a very, very bad joke that has been played on a global scale, and I'm not paying for it. I'm sorry, but there is no law that requires me to pay for the mistakes of the Federal Reserve and the US Treasury. Nothing, not a single requirement. Sorry, Charlie.

[Auburn85 438]

but we are obligated to do it. we are a wealthy nation. we have to do it for the "common good."

that why i say that "feel is the new fact." it's all about confidence or false confidence. as long as some folks had a credit line they felt confident in their buying habits.

I hope people keep saving, despite the government trying to deter people from saving. several people are focused on keeping their lights on, food on the table. They aren't worried about buying "new" homes

or "new" Fords, Cryslers, or GMs.

If you can afford a decent car, there are plenty of used cars. or if you need a house. buy used. plenty of good used homes on the market.

it's pretty freakin, fundamentally, simple; buy what you need, not what you want.

better late than never, but i'm not convinced people get it.