Mind Over Market

American households have dramatically turned away from years of rising spending and borrowing to embrace a new ethic of thrift and saving. This change of heart appears likely to continue for many years, which suggests the United States will have a weaker economic recovery than has been seen after other post-war recessions. While painful in the short term, this return of thrift will be beneficial in the long run. By Robert Stowe England June 14, 2009 [ Note: The following remarks were made at the 30th annual conference of American Independent Writers at George Washington University in Washington, D.C. on June 13.] Whatever history’s ultimate conclusion about the current economic downturn, it has already earned its place in the record books on several accounts. We have the highest unemployment rate in 25 years at 9.4 percent. We have lost 5.4 million jobs. Housing prices have declined the most since the Great Depression. More national debt has already been created during this downturn th...

American households have embarked on a process of debt reduction that could take years to complete, based on historical comparisons, according to a study by the San Francisco Fed. This deleveraging will be painful whether it is from belt-tightening to increase savings and reduce debt -- or through foreclosures, short-sales of homes or bankruptcies. This seems to suggest that the economic recovery that is on the horizon will be weak and that gains in economic growth could be terribly slow in coming. By Robert Stowe England May 30, 2009 Americans have been living beyond their means for so long that they can no longer do so. They have, in fact, begun a long and likely painful process of deleveraging or debt reduction that could last for many years. Economists measure household frugality or profligacy by calculating the ratio of debt to personal disposable income. In 2007 that ratio for the average American household reached an all-time high of 133 percent. By contrast, in 1960 the ratio s...