The Financial Shock of 2005…
by Dr. Mark Skousen
Investment U Advisory Panelist Baltimore, MD September 19, 2005 /PRNewswire - For the past 20 years, first at Rollins College and then Columbia University, I have taught students an uncomfortable truth - most people under-save and over-spend at a dangerous rate. Most Americans spend all their paychecks on current consumption, or borrow to spend even more. And just a few months ago - while no one seemed to be looking - the savings rate in America hit an all-time low… Zero. It's an important watershed event. For the first time in our financial history, Americans as a whole, spent every dime they made. The personal savings rate has been declining since 1980, and fell to zero in June: http://www.investmentu.com/aboutiu/WorldFinancialSeminars/Images/housingzero.gif The short-term consequences can be dire. When Katrina hit, we saw that so many Americans are financially ill-prepared to cope with catastrophe. Yet the effects of the zero savings rate have even broader implications… Four Alarming Long-Term Effects of This Over-Spending Trend - The world owns our debt… America's outstanding debt now stands at nearly $8 trillion. Japan alone holds nearly as much U.S. debt as we do.
- China is outperforming us… its personal saving rate is over 30%.
- Overspending is not sustainable… and the risk to our retail industry is huge.
- The housing market is also vulnerable… If appreciation slows, American homeowners will have to compensate for lost "savings" by taking money out of their income to provide for their future.
The Double Whammy of Under-Saving… These figures highlight two facts: a) We're in a weak position to deal with disasters within our own country.
b) If foreign investors decide to place their funds elsewhere - we could face a sharply declining dollar, a stock market crash, or worse. Too many politicians, professors and members of the media preach that "consumer spending drives the economy" and tax cuts that are saved won't stimulate the economy. In fact, production, investment and productivity drive the economy ("supply side"); increasing consumption is the effect, not the cause, of prosperity. For more information, visit: http://www.investmentu.com/IUEL/2005/20050909.html Dr. Mark Skousen is an economist and adjunct professor at Columbia University, and has appeared on CNBC's Power Lunch, among others. Dr. Skousen has been editor in chief of Forecasts & Strategies - an award-winning investment newsletter - and three trading services. In 2005, he joined the advisory panel of Investment U, an e-letter with more than 270,000 subscribers. For more information about our editors, or to set up an interview, please contact Juan Muñoz at 410.223.2693 or jmunoz@oxfordclub.com, or visit http://www.investmentu.com. | 
