Barron’s Alan Abelson references Henry Kaufman in this week’s column:
As the root of our current woes, Henry unreservedly cited decades of ballooning debt. More specifically, since 2000, he noted, nonfinancial debt outpaced the growth in nominal GDP by nearly $8 trillion, or more than double the gap in the 1990s.
While debt spiraled wildly upward, savings shrank like a big, fat snowball at high noon in the Sahara. Savings, in case you’re too young or too improvident to remember, are what folks have left of their paycheck after taking care of important business like buying one of those pricey TV sets and less-compelling needs, like eating and paying the mortgage.
And the best part about those decadent decades was that even when you spent the last penny of your income and your piggy bank was empty, you could still get plenty of eats, baubles and that giant-screen TV with all the whistles and bells, with a swipe of your magical plastic card or by leveraging the eternally rising value of your dear old homestead.
Henry relates, more in awe than censure, from 1960 to 1990, the growth of nonfinancial debt averaged a rather sedate 1.5 times the growth of nominal GDP, while the savings rate averaged a healthy 9% a year. From 1991 to 2000, things got a bit racier, but not obscenely so: Debt outpaced GDP by 1.8 times and the savings rate averaged 4.7%.
Since 2001, though, borrowing really took off in mega fashion: Aided and abetted by the great housing bubble, debt soared twice as fast as GDP, while the average annual savings rate dwindled to a skimpy 1.4%, and in recent years, more often than not, flirted with zero.
As Henry points out, there’s no way around it: We’ve got to kick our addiction to debt if the world is to regain some semblance of financial sanity. On that score, we might interject, one can detect a kind of grim upside to the economic horror afflicting us: It’s already done wonders in raising the consciousness of just plain folks — if not necessarily that of Washington and Wall Street — to the perils of sinking deep into debt.
Why do I doubt that is going to happen on anything less than favorable terms ?
From Bad to Worse
UP AND DOWN WALL STREET
Barrons, SATURDAY, DECEMBER 6, 2008