US Savings Rate Drops

Some might call this drop precipitous. From Alan Greenspan's testimony to Congress on 15 February:

The sizable gains in consumer spending of recent years have been accompanied by a drop in the personal saving rate to an average of only 1 percent over 2004--a very low figure relative to the nearly 7 percent rate averaged over the previous three decades.

Greenspan suggests that we are relying on increased net worth resulting from increased value of our homes. The Bureau of Economic Analysis in September 2004 that the reported 2003 personal savings rate of 1.4 percent was the lowest since 1938.

Pension plans are a form of savings that are not captured in this data set. However, companies are regularly abandoning their pension obligations, so is it reasonable to include this data point in a new savings rate calculation?

Home equity is also being touted as an equivalent form of savings.

Whatever new measures are concocted to determine what the "real" savings rate is in the US, one figure from the report is undebatable: since 1991, net borrowing from the rest of the world has increased from zero to five percent of national income. If we can't "borrow" it from ourselves (savings accounts are used to loan money) then we'll borrow it from someone else to finance our insatiable appetitite for consumption -- both individuals and governments.