Government Outspends Private Savings

Tuesday, August 04, 2009

The net savings rate as a percentage of gross national income has hit the lowest level in decades. While the consumer attempts to deleverage and begin saving money again, the government is determined to avoid the economic costs of consumers tightening their belts. Private saving is at the highest its been in 15 years while government deficits are at their highest as well, by far their highest. The government seems to believe that printing money and running high deficits can entirely avoid the pain of contractions.

Private saving for the first quarter of 2009 came in at $741 billion but this was dwarfed by the $996 billion of deficit spending by the government. The difference has brought the national net savings to -1.8%. The economy must deleverage. As Peter Boockvar stated in the videos posted yesterday, "deleveraging is a freight train" that cannot be avoided. The government has just pushed out the day of reckoning.

We are just starting to recover slowly from a crisis caused, in large part, by too much leverage. The US government has decided that while banks and consumers made all the mistakes, they will simply transfer the leverage to their balance sheet. Let us feel some pain! We must feel pain in the short-term to avoid the long-term consequences of our massive debts. Consumers are realizing their spendthrift ways and slowly saving more but our government officials are sprinting in the opposite direction to the detriment of all of us in generation X, Y, Z and beyond.


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