Punishing Savers, Again

Today's Personal Income and Outlays report [pdf] from the Bureau of Economic Analysis makes one thing clear: The increase in personal savings that began in the last months of the Bush Administration has been completely wiped out.

When President Obama took office, the personal savings rate for Americans was an anemic-but-getting-healthier 5 percent. That number peaked a year ago, and is now down to 2.8 percent. This drop is even more striking when you consider that asset prices have, until the beginning of this year, been dropping or flat almost across the board.

And now, according to Agence France Presse, there is even less reason to save than there was a few months ago. AFP uses the personal outlays numbers to show a 2 percent increase in consumer inflation over the last year. That's mostly driven by costs for energy and especially food, which has seen an 18.7 percent increase.

Conveniently, food and energy are not counted in the "core" Consumer Price Index, allowing inflationists like Federal Reserve Chairman Ben Bernanke to continue making rhetorical gestures toward a stable currency while taking actual steps to weaken your dollar by any means necessary.

As noted here before, the common belief that savings went negative in the middle part of the last decade is not true. Although the personal savings rate did reach an historic low in 2005, it never went negative.

But there is real reason to believe savings will have to go negative in order to power this "recovery" they keep telling us about. Outside of the federal government, job creation remains anemic. The ADP employment report scheduled to be released this week is expected to show a very slight increase in private sector job creation, the first since the recession began.

That sluggish rate of job growth, and the extremely slow increase in personal income in the BEA's report, is a recipe for stagflation. The only way to keep consumer spending up is if the whole nation can commit to breaking open every piggy bank. And if your dollars start losing value as quickly as expected, that's probably the smart move.

The problem is that eventually you, just like the governments of most of these 50 states, run out of money. As Jimmy Carter discovered back when Obama was getting high with punk rockers at (the not cheap) Occidental College, introducing inflation into a stagnant economy doesn't necessarily produce a boom, or even a recovery.