Stephen Roach puts the American consumption binge of the past two decades in perspective with the following set of statistics.
1. As a share of disposable income, the personal saving rate fell from 5.7 percent in early 1995 to nearly zero from 2005 to 2007.
2. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3 percent of disposable personal income in 2000 to nearly 9 percent in 2006.
3. Household debt hit a record 133 percent of disposable personal income by the end of 2007 — an enormous leap from average debt loads of 90 percent just a decade earlier.
4. A decade of excess consumption pushed consumer spending in the United States up to 72 percent of gross domestic product in 2007, a record for any large economy in the modern history of the world. Consumption growth averaged close to 4 percent annually over the past 14 years.
All the bailouts and fiscal stimulus will only be postponing the inevitable, unless Americans start saving and cut back on reliance on foreigners to finance their deficits. But ironically enough, with the economy plunging into a deep recession, this may not be the right time to start saving!