SAVE ‘TIL YOU GET UP

8/13/09

A retail industry analyst (I didn’t catch her name—my apologies), commenting on the 0.1% drop in retail sales for July that was reported this morning, stated on the 9:00 AM (Chicago time) edition of the CBS radio news:

“Shoppers are now very, very frugal; they’ve learned new habits.”

Most economists will doubtless find themselves sullen and down in the mouth at this newfound frugality on the part of the American people. They will insist that people must “spend again” if we are to ever get out of this economic condition that must not be named but that they are now increasingly sure has ended. But any spurt in spending now would be the economic and financial equivalent of that hefty draw on the half pint of Kessler’s that brings such fleeting relief after a long night of especially brutal binging.

We have a huge debt problem in this country. Household indebtedness reached a record 132% of disposable income in 2007. It has since fallen to 124% of disposable income, causing many deep economic thinkers who only recently have begun to shave to hail, or bemoan, our new sturdy frugality. However, in 1952, the household indebtedness to personal income ratio was 36%. I can hear it now from the solons of Wall Street and academia: “Oh, Quinn, you’re lost in the past. Those were the Ozzie and Harriet Days (and why is that so bad?) that will never return. 1952! Hah! My parents weren’t even born then.” Okay. Maybe, given the historical knowledge and perspective of much of the generation currently in charge on Wall Street, 1952 is about the time Julius Caesar conquered Gaul (or was that when William II conquered England? Same difference. Pass the remote; “Two Men and a Boy” is on.). So let’s try this: The household indebtedness to personal income ratio was 69%, just over half what it is now, in 1985! While most of those people to whom America entrusts its money were still in grade school (if they were that old) in 1985, most of my readers can remember things that happened in 1985 as if they took place yesterday. (That many of us wish we couldn’t is another issue.)

Another eye opener is that our savings rate fell below 0% in 2005 and stayed there for nearly two years. Much to the chagrin of economists and financial solons, as a consequence of the economic condition that must not be named, that rate reached 6.9% in May of this year before falling (and I suppose the deep thinkers consider at least the direction of this move a favorable development) to 4.6% in June of this year. To many financial and economic wiremen, including the likes of Ron Insana (See my newly seminal 7/10/09 post, “IF I CAN’T FIND ME A HONEY, TO HELP ME SPEND MY MONEY, I’M GONNA HAVE TO BLOW THIS TOWN…”), this hefty savings rate is evidence that consumers now have the all clear to go out and start p---ing away money again. But not only are these income statement developments paltry (At their peak, recent savings rates did not quite reach the bottom end of the 7%-10% savings rate range of the post War (That’s World War II for the reigning masters of the financial universe.) years.), they have barely made a dent in the balance sheet travails outlined in the last paragraph.

If anything good has come out of the economic condition that must not be named but is most assuredly, according to the economics profession, over, it has become the newfound frugality that this morning’s retail analyst cited. If we are to blow this attitude adjustment in order to bring temporary relief from our economic difficulties, we will experience consequences roughly equivalent to those experienced by a new AA member who takes a few quick blasts just to fortify his nerves for the date he has made with a comely young lady he met at his last meeting.

If our economy is to remain viable as a going concern, we need a domestic capital base, which means we must begin to save again. There are signs that we are beginning to learn to do so, but only because the economic condition that must not be named has terrified us into doing so. Even saving prolongs our malodorous economic circumstances, we must continue to save. Given the condition of the national balance sheet, temporary relief will be worse than no relief at all but will only exacerbate the precariousness of our economic situation.

Of course, I am not hopeful that the American people have come to regard saving as anything but a temporary hardship that must be endured. (See, inter alia, my already seminal 8/1/09 post, “SOMEWHERE, (BE CERTAIN WITH) LEN BURTON IS SMILING,” my profound 7/13/09 piece “HEY JUDGE, OLD BUDDY, OLD PAL, I’LL PAY THAT HUNDRED I OWE YA’ IF YA’ GET ME OUT OF THIS SPOT…”
and the aforementioned 7/10/09 post.) Now that, as the recession winds down and happy days rapidly return (according to the ever wise Wall Street and Washington types whose familiarity with the average person is akin to the familiarity of a Komodo dragon with the environmental features of Antarctica), the typical American will spend up to and well beyond the limits of his or her income in his or her ongoing efforts to fortify his or her fragile self-image and fill the voids in his or her life with a bunch of junk. Doubtless, the financial experts will hail this as a cause for raucous celebration.

And our defenestration as an economic power, along with the decline of our standard of living will accelerate…to the cheers of Wall Street types who will reap ever fatter paychecks to blow on ever more senseless piffles.