Recovering America: Earning Less, Spending More, $6.7 Trillion Poorer

Since Ben Bernanke the hero saved the global economy, things have been coming up roses for, well, nobody. 

The Department of Commerce reports that Americans are spending far more than they are making. That's good news, according to CNN: 

[PNC economist Stuart] Hoffman said he was encouraged by the fact that Friday's report showed a 1.6% increase in spending on durable goods, which are typically big-ticket items. That was driven by strong auto sales during the month, as automakers reported the best new-car sales in four years.

Spending on nondurable goods, such as food and gasoline, rose 0.9%. with virtually all of that increase due to the higher prices.

But spending on services, such as airfare and cable TV, grew only 0.4%, which kept the overall spending increase to 0.8%.

February's income gain was less than the 0.3% rise forecast by economists surveyed by Briefing.com, while spending was more than forecasts of a 0.6% rise.

But the willingness of consumers to spend is a good sign for economic growth, since consumer spending represents more than two-thirds of the nation's economic activity.

I remember hearing somewhere that there's this thing you need to do before you spend money, it's called, like, churning it or spurning or yearning it or something like that. Anyway, USA Today has more details: 

Still, the job gains are not resulting in bigger paychecks for most Americans. Income grew just 0.2% last month, matching January's weak increase. And when taking inflation into account, income after taxes fell for a second straight month.

Most consumers spent more of what they earned and saved less. The saving rate dropped to 3.7% of after-tax income in February. That was the lowest level since August 2009. It had averaged 4.7% for all of last year.

Americans are also taking on more debt. Consumer borrowing increased from November through January by the most in a decade for a three-month stretch. Yet the increases were driven almost entirely by auto and student loans. Credit card debt decreased in January and remains well below pre-recession levels.

And to revisit some of my favorite back-of-the-envelope factoids: 

* The BEA's measure of personal savings [pdf] stopped going up a while back, and now it has dropped through the floor. In February it came in at 3.7 percent – a rate close to what was considered negative savings back before Barack Obama's sparkling intelligence saved us from the misrule of President Chimpy McHitler. 

* According to the Federal Reserve's Flow of Funds report [pdf] for the fourth quarter of 2011, household net worth is also in the toilet. We are now collectively worth $58.5 trillion. In 2007 we were worth $65.2 trillion. I know I feel $6.7 trillion poorer; how about you? Those are inflation-adjusted figures, but how's this for adding insult to injury: I still have a copy of the Q3 2007 Flow of Funds report, and even the household net worth figure at the time (i.e., not adjusted for the last five years of inflation) was still higher than today's, at $58.6 trillion. That means that not only is our money worth 10 percent less than it was in 2007 (literally decimated!), but we have $100 billion less of it. 

* Finally, the one healthy trend I have been following – a very tiny, fractions-of-a-percent increase in the equity portion of real estate – has started going back down again. In the third quarter of 2011, the equity portion (that is, total real estate owned less mortgage debt) came in at just under $8 trillion, comprising 43.5 percent of real estate owned in the United States. In the fourth quarter, the equity portion dropped to $7.7 trillion, while mortgage debt dropped barely at all, leaving the current equity portion at 43 percent even. It's a small decline, but remember: The increase in the equity portion, even if it was driven mostly by brute-force deleveraging, had been the only evidence that Americans were getting their atrocious balance sheets under control. 

These trends could shift, but they have long-term implications that are more serious than anything having to do with current unemployment or real estate prices. The one good thing about recessions is that they serve as reminders that betting on the come is not sound personal finance, that at some point you actually do have to sock away some money, earn more than you spend, accumulate wealth and create value. 

Now even that small step in the right direction has been retracted, and it's another reason that Keynesian success feels like failure. This rotten fiscal behavior on the part of Americans is dangerous and inadvisable, but it's a completely rational response to the macro signals Bernanke and his wise men are sending. This is the result you get when you treat deflation as a dirty word and devalue the dollar so ruthlessly that saving money becomes a ticket to the poorhouse. And the most maddening part is that Bernanke won't get the blame: When the stagnation sets in again, it will be the fault of private people who didn't spend enough and clearly lack the wisdom to run their own economic affairs. All that for a stimulus that increased unemployment and a recovery that exists only in Jay Carney's imagination. 

In other currency devaluation news, Canada is retiring its penny. That's a symbolic (and according to some evidence, practical) surrender to inflation that I'll fight like James K. Polk to keep from happening on this side of the border.