But considering a large subpopulation seems to think that their recent tax cuts were actually socialistic tax increases, and that government spending deficits only became problematic after we elected a black president, I think that "rationality" is a conclusion only achieved through extreme self-deceit and intellectual overreaching.

:)

In the BEA chart, the middle of this decade shows a substantial drop in savings. I'd like to know where the money that was not saved went to.

For example, if it went into increasing real estate prices, that seems a further indictment of their escalation and the effects of same.

If it corresponds to a decline in earnings, while the country's measured output and wealth continued to increase, then whose earnings increased?

Perhaps somewhat obvious questions, and perhaps answers are fairly readily at hand. But if so -- and I'm not sure of that -- then I think the general public still needs the picture more clearly drawn, and reiterated, of how regulatory and market manipulation worked to siphon off their net worth.

The current crisis is not an "act of God"; it is the result of an economic and political strategy and that made a small set of people extremely wealthy, at the expense of the rest of us. But the picture needs to be drawn clearly, and irrefutably, and broadly enough so that the overall population understands its inclusion and manipulation by the scheme.

Then people need to be reminded that they elect those who make the laws and regulations (or the appointers of same). In this regard, they do not escape responsibility -- past, or present in applying the political pressure needed to correct the situation. And for educating themselves, instead of taking campaign slogans at face value.

My husband and I made about 15% less last year than 2 years ago (without factoring in inflation), but we continue to contribute a quarter of his salary and 10% of mine to our 401k (I know... the stock market is not a great option, but it's the best one we have) in addition to maintaining/increasing our savings and keeping credit card balances down. We're terrified of losing our jobs and need to have a buffer. No vacations. No unnecessary spending. We never did dine out much. Put off some major expenses. Fix up the house so that we could hope to sell it for enough to pay off the mortgage, if necessary.

Americans aren't becoming frugal - we are simply scared. We're willing to put up with no raises or bonuses and work more hours if we can just keep our jobs. We are working to improve our job prospects even as we put in more hours at work and fix up our homes so that we could get top dollar if the worst happens. Personally, I've decided that if we end up without jobs and in foreclosure, I'm just going to deal with it. It's not as if we'd end up on the street. I feel sorry for people who don't have family who could take them in. But it's silly to live in fear. Just plan as well as you can and accept what happens as part of life. And hope for the best - just hang on one more month, hoping that we'll pull out of the recession and/or we can save enough that we'll be able to get through until that happens.

How have Americans responded to this body blow? By saving. According to the Bureau of Economic Analysis, the personal savings rate is now at a 14 year high of 5.7 percent. The BEA has a great chart which makes the change in behavior drastically apparent.

So maybe we are rational, after all.

Rolfe Winkler over at Option ARMageddon took a look at the same Flow of Funds report. The increased savings by US households is smaller than the increase in US govt deficit spending, so aggregate US debt continues to increase:

http://optionarmageddon.ml-implode.com/2009/06/11/fed-data-de-leveraging-has-only-begun/

While the protection of the 4 largest banks (C, BAC, WFC, JPM) is rational from the point of view of their bondholders and management, it is irrational from the point of view of the public interest.

http://rortybomb.wordpress.com/2009/06/12/diy-stress-test-3-a-new-fed-stress-test-and-size-versus-losses/

http://rortybomb.wordpress.com/2009/06/11/rortybombs-diy-stress-test-2-final-spreadsheet/

http://rortybomb.wordpress.com/2009/06/11/rortybombs-diy-stress-test-1-background-and-theory/

No credit crisis in history has been resolved without a restructuring of the particular mountain of debt. Our situation is no different. The primary question is who bears the brunt of the pain. By bailing out the large banks, ignoring fraud investigations and opting for a return to status quo, Obama has chosen to socialize the losses and the pain of the mistakes of the large banks.

There is little comfort in households deleveraging if government continues to lever up.

...I thought an increase in personal savings rates was a bad thing during a recession, since it's keeping money out of circulation. If people were rational, they'd have saved during the boom times and not at a point when squirreling money away beggars their neighbours.

Hang on a minute! Let's look at that data again:

The net worth of households in the United States dropped $1.3 trillion in the first quarter of 2009. "In the first quarter of 2009, most of the losses were registered in home prices ($500 billion), stock holdings, ($300 billion), and pension fund reserves, ($540 billion)."

So, what happened in the immediate earnings of Americans happened to those who lost their jobs. The rest of those losses are at best NOTIONAL. Only those who were looking for a fast buck believe that prices continue to rise forever.

Housing: The property market bubble meant that the housing equity didn't really exist. It was a fiction created and promoted by banks which fictitiously inflating house valuations to continue inflating the housing market, to drive up prices and generate bigger fees on increasingly worthless Mortgage Backed Securities. Property being an investment, buyers should ALWAYS look at how long they plan to hold the investment, how much they are paying and how much they will sell it for or recoup. Anyone who thought recent prices were real had no business buying a property. I finally bought in 2007 with a view to being here until at least 2017, by which time I will get back more than I put in.

Stocks - the only people who lost money right now are people who are cashing in shares right now. Retirement accounts are a LONG TERM investment, and the really the only way to view their current value as a loss is if you are retiring right now. If you put money into the market in January/February would you declare your retirement in 2040 to be 30% richer?? No. You would be waiting to see where the account is in about

2035 and plan accordingly. Sure, there are a lot of boomers out there about to retire, but they should have been advised to liquidate stocks for securities at least two years before retiring. The rest of us (me included) have DECADES to recover the losses.

I might also point out that even before the market crashed away from 14,000, if you looked at the chart of stock market performance & returns over a 100 year window you find that it actually returns a mere 4% return per year, which is barely more than one third of the amount claimed by the financial industry (gee, I wonder why!)

So the only people who have really been done down by the stock market are speculators and people using money they didn't have (i.e., borrowed) to inflate prices. Good riddance!

The real issue is that Americans have been underpaid for years. The taxation burden has been disproportionately pushed down the pay-scale for 30 years, while corporations and companies have used off-shoring to drive down costs and wages even faster, whilst simultaneously using off-shore tax havens to avoid taxes (then campaigned against a corporate rate they don't pay!)

Don't believe me? Take a look at this article on the decline of TGI Fridays and casual dinning: http://www.salon.com/news/brand_graveyard/feature/2009/06/12/tgif/

"But casual dining's struggles actually predate the recession. In 2002, the sector did $100 billion in business. By 2008, that number had dropped to $75 billion,"

It's the average Joe who eats at casual dining establishments and average Joe is poorer than ever, thanks to an every increasing proportion of his depressed earnings being sucked into paying mortgages on over priced accomodation. I would wager that we will see a recovery (albeit a slight one), as the effect of lower mortgage rates coupled with a bottoming out of the economy provides a little security and stability in average Joe's pocketbook. It's not rationality that is driving this, it's survival.