James Grant observes:
“Mr. And Mrs. America, we predict, will shortly disappoint their hundreds of millions of fans and economic dependents. They will spend less, borrow less and save more. There would be nothing so strange about that—certainly, nothing to shock—except for the track record. On form, the American consumer is no more prone to save than the American Marine is to retreat.
However, with joblessness rising, house prices falling, gasoline prices orbiting and credit contracting, even America’s iron wallets must adapt. Hovering near the zero-percent marker, the savings rate has little farther to fall. It takes no great predictive courage to suggest that it may begin to rise, which we hereby do. If the savings rate returned to just half its level in 1992, it would reach 3.9% of disposable income, up from 0.6% at present. Disposable personal income is jogging along at the rate of $10.5 trillion a year. An increase in savings of 3.3 percentage points would amount to $346.5 billion of deferred spending. For perspective, in the 12 months through April 30, Wal-Mart Stores rang up sales of $383 billion.”
Grant’s Interest Rate Observer
June 27, 2008