Personal Savings Rate Hits a High!

The personal savings rate hit a high according to the U.S. Government Bureau of Economic Analysis. The rate, as a percent of disposable income, hit 4.2% in March, which was greater than the February 2009 rate of 4.0%. As can be seen in the following chart, this not only reverses a trend, but is the highest since 2000. It seems the American Consumer has gotten the gospel. Can "Living Below Our Means" be a possibility? Nah! I assume as soon as the fear moves away, that the greed will return and spending will ramp up. Same as after each previous recession. However, saving is a good thing in the long run. We'll need that money to pay the increased taxes for the bail outs. Unfortunately, at present the reduced spending is wreaking havoc with the economy.

My personal stimulus plan is to frequent some of local restaurants and to increase my tipping. One reported a 70% decrease in business in January; a combination of nasty winter weather and the pinch of the panic.


According to the BEA: "Personal outlays -- [Personal Consumption Expenditures] PCE, personal interest payments, and personal current transfer payments -- decreased$24.5 billion in March, in contrast to an increase of $38.7 billion in February."

"PCE decreased $24.2 billion, in contrast to an increase of $39.1 billion. Personal saving -- [Disposable Personal Income] DPI less personal outlays – was $455.3 billion in March, compared with $432.6 billion in February. Personal saving as a percentage of disposable personal income was 4.2 percent in March, compared with 4.0 percent in February."

For a comparison of personal saving in BEA’s national income and product accounts with personal saving in the Federal Reserve Board’s flow of funds accounts and data on changes in net worth, go to http://www.bea.gov/national/nipaweb/Nipa-Frb.asp.

The Perils of Ignoring the Past

We can't say that we haven't been warned about the perils of ignoring the past. More than 2,000 years ago, the Roman orator Cato noted that, "there must be a vast fund of stupidity in human nature, or else men would not be caught as they are, a thousand times over, by the same snares . . . while they yet remember their past misfortunes, they go on to court and encourage the causes to what they were owing, and which will again produce them."

The above is John Bogle in the Wall Street Journal January 8, 2009. Mr. Bogle is the founder and former chief executive of the Vanguard Group of Mutual Funds. His newest book, "Enough. True Measures of Money, Business, and Life," was published by Wiley in November.

People Will Be Strange

We have experienced a significant financial shock, which resulted in a panic. To some, it looked like the end of the world, but it was not. However, this is not over yet, not by a long shot. That reality is just beginning to sink in. Most of us are in some form of denial, and will attempt to go back to "business as usual". The resistance to change is so ingrained in our lives! Within limits, denial will be useful, but there will be no "business as usual" and such a strategy will not work. We cannot avoid this.

Unfortunately, people have not yet adapted to the current reality. It is somewhat like a Jekyll and Hyde economy out there. We are in uncharted waters and we will be experiencing additional shocks, or after shocks. We are entering a nasty recession, not some mild blip on the radar and with it, a bear market with teeth. This will not be a short, shallow recession.

As a consequence, people will be a bit strange. Stress levels will be high. Many people will operate as if this is a mild recession, rather than the nasty thing it really is, and hope it will soon be over. It will get worse and we will experience lots of bad news in the months, and perhaps years, ahead. And, our stock portfolios will take a pounding. As we do this slow, inexorable downward spiral in fits and starts, anxiety will again rear it ugly head, not just once, but again and again, as the bad news continues coming. Cities and towns will succumb to the consequences of their poor financial planning. Some states may teeter on bankruptcy. The news will get worse, much worse, before it gets better. It's too bad we can't fast forward to mid 2009 or so, but that is the way it is and one might as well brace for the economic fits and starts.

In the midst of all of this, Americans will suffer withdrawal pains as the cheap credit with which we have funded our lives for these past years, is no longer available. How will we survive without our toys, without exercising that need for a quick fix and a spate of binge buying?

The good news? We are in the maelstrom and like a nasty storm that has been brewing on the horizon for some time, we are no longer observers but are in it, and we will be in the fight of it. The period of waiting with hushed breath is over. Most of us are resourceful and are capable of making good decisions and we will now have the opportunity to make them, and to use all of the stuff we have learned these many years while we sat, apprehensively waiting for this storm to arrive.

So relax, take a deep breath, and give your neighbors and co-workers a hand or at the very least, some slack. We are all in this together and at various times, it will be necessary for each of us to lend a hand to another, so we do get through this with decency and grace.