Runaway spending
Rather than looking at the savings rate as the amount consumers put away for a rainy day, an alternate but useful way to look at what economists call "savings" is to see it as a reflection of spending.
And in that interpretation, all economists agree: We are spending more as a nation than ever before.
In 2005, Americans spent a record $9.07 trillion, up 6 percent from 2004 when consumers spent $8.5 trillion.
Spending alone would not be a problem if incomes were keeping pace. In 2005, disposable incomes rose to only $9.03 trillion, compared with $8.68 trillion the previous year.
And if we look at spending as the economists do -- as a percentage of incomes, we see that we have been spending a bigger and bigger percentage of our salary at the end of every month and have been doing so since the mid 1980s.
We are now at a point where we are spending slightly more than we are earning.
Where's it all coming from?
Since our spending is outpacing our earnings, the money obviously has to come from somewhere. By definition, if you aren't earning enough money to pay your bills, you are forced to either sell something, such as stocks, or borrow against something, such as a
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, to make up the difference.
And that is exactly what has been happening for the past few decades.
It just so happens that stocks began a meteoric run in price appreciation at just about the same time as our savings rates began declining in the late 1980s.
Many economists believe that the increase in "paper wealth" made people feel free to spend more than they otherwise would.
After stocks crashed in 1999 and 2000, homes took over as the appreciation darling.
Again flush with paper wealth after the value of their homes ballooned, families had easy access to cash through cash-out mortgages, enabling the buying binge to continue.
And since Americans are spending more than they are earning, it is largely foreign investors who are buying up the stocks we are selling and who are financing the debt we continue to rack up.
