US Savings Rate Sinks to Lowest Since Great Depression

US Savings Rate Sinks to Lowest Since Great Depression:

"Americans spent $42bn more than they earned last year, turning the annual US savings ratio negative for the first time since the Great Depression.
The offical figures published yesterday, a day ahead of the retirement of the chairman of Federal Reserve Alan Greenspan, will be seen as a telling verdict on his 18 year reign at the US central bank.

The savings ratio fell to minus 0.5 per cent last year...the first time the ratio has gone negative for an entire year since 1932 and 1933, when the US was struggling to cope with the Great Depression.

Mr Greenspan is tonight expected to sanction the Fed's 14th consecutive interest rate rise - to 4.5 per cent - in part to temper the consumer boom and encourage saving again.
The savings ratio fell to minus 0.5 per cent last year, meaning Americans not only spent all of their after-tax income but also had to increase their borrowings or plunder their savings. This is the first time the ratio has gone negative for an entire year since 1932 and 1933, when the US was struggling to cope with the Great Depression.

The savings ratio is seen as a key economic indicator as it shows how vulnerable households are to a sudden shock such as a surge in interest rates or unexpected redundancy. Mark Zandi, an economist at the analysts' website Economy.com, said the low level of savings would became a problem only if interest rates continued to climb.

However, the markets are increasingly betting that the Fed will use its statement tonight to send a signal it is close to the end of its tightening cycle that began in 2004. Weak GDP figures for the final quarter of last year - showing that growth slowed from 4.1 to 1.1 per cent between the third and fourth quarters of the year - boosted that speculation. But there is growing "