Saving in America

An analysis by the Bank for International Settlements has shown that whenever a country's private sector net savings swung sharply into deficit in the past, a deep economic downturn was the rule, as the private sector was later on forced to slash spending and reduce debts to move back into surplus. This time America escaped with a mild recession due to a supportive money and fiscal policy. After 2000 when the combined private sector showed a heavy deficit the private sector financial deficit reached nearly balance in 2003 as firms slashed spending. But households continued there spending and didn't think on saving at all. Now the combined private sector net savings are again deep in deficit.

While America's corporate sector is now a net saver, households are continuing to spend significantly more than they earn. This is odd, as it is normal that households are net savers, while companies are normally financing their investment with loans. This time companies are investing less than their cash flow. So the problem is that by consuming more they may face a situation later on where American consumers will be forced to save even if spending would be needed.