The Ignorant Investor

WASHINGTON (AP) -- 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.

The savings rate has been negative for an entire year only twice before -- in 1932 and 1933 -- two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.

You know, I wrote a post on this story a few weeks when it first came out but never posted it. It involved a long story about a young couple that lived next to my family as a kid for a year or two before their debts caught up with them and they were forced to sell their beloved house and move. It seemed like a nice parable for consumerist America, but I couldn't get the angles in the story right, and what the hell- I'm not Tolstoy and this isn't War and Peace. So screw it. Instead I'll be brief.

Besides the obvious significance of the news on the savings rate, I know that somewhere there is a very intelligent economist saying that this news is insignificant in the broader picture of our incredibly resilient economy- an economist who is arguing with a self-assured smirk that the savings rate doesn't take into account the new realities of global trade, or the merits of a highly developed credit system, or some other explanation that I don't begin to understand.

I'm not an economist, and I can't argue economics like an economist. But I have to ask myself: if they've been keeping track of this number since the 1930s, it's got to mean something. And whatever that something is, I can't imagine that it's a good thing. And if it isn't a good thing, why would this economist tell me that it is?