Monday, January 30, 2006

Only Once in the Last 100+ Years Have Americans Not Saved Anything At All--1932/1933


By Elaine Meinel Supkis

The only time Americans were unable to save any money at all, collectively, was when the entire banking system collapsed around the entire world. This singularily bad event, a cascade of bad credit and defaulting on loans, began during WWI when all the major empires of the world went in debt to the USA to fund that massive kill-fest.

Associated Press:
Americans' personal savings rate dipped into negative territory in 2005, something that hasn't happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.
Each item, standing alone, doesn't signal disaster but when everything is aimed the same way, it is a disaster. The trade deficit, the savings deficit, the budget deficit all at once.
With employment growth strong now, analysts said that different factors are at play. Americans feel they can spend more, given that the value of their homes, the biggest asset for most families, has been rising sharply in recent years.

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

"Americans seem to have the feeling that it is wimpish to save," said David Wyss, chief economist at Standard & Poor's in New York. "The idea is to put away money for old age and we are just not doing that."
So why aren't we all saving anything? Inflation is raging, it has been raging for quite a while, in the area of necessities. This inflation has hit us all very hard. Inflation in things we can put off buying has been nonexistant because it can still be outsourced. Namely, energy, being at the base of the economic pyramid, the thing that literally powers the higher levels, is a negative force here, it drives inflation, and if we export jobs frantically to cheaper labor venues, the lowers the price, squeezing out the inflation from energy but at the cost of destroying our labor compensation which means, since our personal finances are way below this deflated inflation, it still is running at a rate greater than we earn.

Sigh, this means, simply, there is such great inflation, we can't keep up even when it is reduced to only 3%. For our incomes are -2% or worse! The solution to this was to reduce taxes and reduce other things until we got a situation whereby everyone is on an escalator down while energy is on an elevator shooting up to the 100th floor!

Interest rates, set ridiculously low, below the rate of inflation, meant that aggressive savers like myself, are hammered as the government confiscates my money faster than I can squirrel it away. When they were paying me 1.7% for my hard earned cash when inflation was roaring along at over 3%, this hammered me hard. At least I could keep up with this ridiculous inflation but only by cutting lots of firewood and spurning using any other form of energy to heat my home, for example. And of course, purchasing a gas miser car, my only purchase this year.

People living in the lower 1/3 of the economy are suffering from a 10% inflation rate with virtually nothing to protect them. These are the people paying 23+% in interest rate on unsecurd loans. The general population is paying over 5% loans on their properties which is still, in the lower classes, below the rate of inflation but not enough to make up the steady erosion in income. From the NYT:
Millions of low-income people would have to pay more for health care under a bill worked out by Congress, and some of them would forgo care or drop out of Medicaid because of the higher co-payments and premiums, the Congressional Budget Office says in a new report.

The Senate has already approved the measure, the first major effort to rein in federal benefit programs in eight years, and the House is expected to vote Wednesday, clearing the bill for President Bush.

In his State of the Union address on Tuesday, Mr. Bush plans to recommend a variety of steps to help people obtain health insurance and cope with rising health costs. But the bill, the Deficit Reduction Act, written by Congress over the last year with support from the White House, could reduce coverage and increase the number of uninsured, the budget office said.

Over all, the bill is estimated to save $38.8 billion in the next five years and $99.3 billion from 2006 to 2015, with cuts in student loans, crop subsidies and many other programs, the budget office said. Medicaid and Medicare account for half of the savings, 27 percent and 23 percent over 10 years.
Sigh. With 3% inflation every year, cuts will have to be draconian just to make up the difference. Deflating balloon, meet inflating money machine!

The Great Depression is very misunderstood by people. Money lost value because no one had enough. So everyone had to drop prices to accomodate the lack of sales and to make a profit, had to drop wages over and over again. This proved to be a world deathspiral that was ended by a very nasty war and the confiscation or destruction of about 20 million people's lives and homes (conservatively, actually, the destruction was much greater). Britain was the world-girdling empire which has to confiscate not only all the savings of Britain in order to pay for the moronic mess of WWI, they had to go into debt to the USA. And had so little economic excess left at the end of the war, they had to force Germany to pay "reparations" which Germany got, in the form of loans from the USA.

When Germany defaulted due to the lack of excess income due to persistent inflation which, at one point, shot up to infinity, France and England's currencies collapsed. This then spread across to America, thanks to the bubbles we created, anticipating easy, eternal flow of funds from England to America via Germany.

Back then, the pound was the world's currency and all others were weighed against it.

We are in a similar but maybe worse situation here. We are more and more like Weimar Germany, owing money to anyone and everyone as we try to keep up the fiction that there is no inflation and we can live like kings on pure nothingness. I don't see much hope about this since we are not being told the truth. The fiscal manipulations are keeping the truth at bay, but not for long.

The fact that no one in our government, not a soul, is yelling about us going over the debt limit is like Sherlock Holmes' "The dog that didn't bark" story. Namely, they are all in collusion on this deception. I remember when Ross Perot made a big thing about budget deficits when it was 50% less than today. Now, he is silent, thanks to the huge tax cuts he got.

Bush is going to start the really nasty budget cutting now. There is no more easy credit left. They all know this. Nervously, they sift their shifty eyes back and forth. The budget deficit has to be dropped to $0 really really REALLY fast and they can't do it. They want to drop taxes even more on the rich because even the rich are not keeping ahead of inflation except at the very tippy top of the pinnacle: about 2000 people live in that rarified world. The top people at Exxon which reported a profit of over $10 billion this year, Chevron, all the oil companies, rolling in dough, Bill Gates and who else? I really wonder.

Most, though, are losing ground, thanks to higher and higher oil prices. They want tax cuts, more benefits, more loans, more everything.

It isn't coming anymore. Or, the price will just be too high. One thing that has struck me, is the fiction that the need for loans from China, "off shore banks" (um, wow, Enron loans!) and Japan have already carried a very steep pricetag. It is just, outside my poor blog, no one who understands this are saying a peep.

Time to go skiing at Davos! Whoopee. Note how many Democrats are there, having fun.
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