The Crash Course - Chris Martenson [63]
Even if the United States were about to embark on another 1990s-style economic boom on a par with the Internet revolution, it would still face structural headwinds that will place enormous demands on future funds. Unfortunately, no such savior technology is readily apparent at this time. Given the sheer number of economic currents and other financial demands that lurk in the near future, it would be ideal if the United States were entering the twenty-teens with high levels of rainy-day funds socked away. But this isn’t the case.
In 2007, it was reported that the personal savings rate had plunged to historic lows, levels last seen during the Great Depression when people were dipping into savings to buy food and pay the rent. This created the false impression that the modern savings rate was a result of a sudden crisis.2 In fact, the personal savings rate had been steadily declining since around 1985 (see Figure 14.1), indicating that this failure to save wasn’t just a recent notable blip on the economic radar, but rather the culmination of a multidecade process.
Figure 14.1 Personal Savings Rate from 1960 to 2010
The personal savings rate is the difference between income and expenditures for all U.S. citizens expressed as a percentage.
Source: Bureau of Economic Analysis.
Note that the long-term historical average for U.S. citizens between 1960 and 1985 was 9.2 percent. For comparison, in Europe in 2009 that number was just over 15 percent,3 and between 1978 and 2000 China’s national saving rate was a stunning 37 percent of its GNP.4
Savings are important to us individually because they form a cash cushion that can get us through economically difficult times. They are also important at the national level, because a nation that doesn’t save is a nation that steadily grows poorer. Savings contribute to investments in property, plant, and equipment that lead to the formation of future wealth.
However, Figure 14.1 somewhat obscures the fact that the extremely wealthy raked in most of the income gains during the 1990s and 2000s, which allowed them to save enormous amounts of money, while the lower socioeconomic brackets suffered income declines and posted savings rates that were deeply negative. It all averages out to one low rate of savings, but that’s like having one foot on hot coals and the other in a bucket of ice water and saying that, on average, your feet are at a comfortable temperature. One group saved a lot because they could, and the rest couldn’t save at all. Why is this important? Because, as the Greek philosopher Plutarch once observed, “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.”5
One possible explanation for the declining savings rate is the rise in the use of credit seen over the same period of time. Where a savings account once provided a buffer to life’s vicissitudes, the idea now is that credit cards and home equity lines of credit (HELOCs) can perform that task without the bother of foregoing any of life’s pleasures while building up savings. In what qualifies as a case of cultural whiplash, in only 25 short years the United States entirely replaced a “save and spend” mentality with a “buy now, pay later” approach. Lending credence to this overall idea is the observation that the savings rate began its decline right around 1985, coinciding perfectly with our long, steady rise in debt accumulation. Savings and cash cushions were swapped for debt and credit lines.
Another type of saving exists in the form of pension and retirement funds. State and municipal pensions are in horrible shape, and in 2010 were found to be underfunded by $3 trillion and more than $500 billion, respectively.6 This happened for two reasons. First, various governmental administrations regularly made the decision to defer funding of these promises until some later date. This had the double effect of preserving more money for current spending while also keeping taxes down—two irresistible goals of any town, city, or state administration. Second,