Personal Saving Behavior and Real Economic Activity

M any analysts view personal saving behavior, summarized by statistics such as the personal saving rate or household debt acquisition, as a key determinant of real economic activity. Some blame the recent sluggishness of output and employment growth on low personal saving in recent years. The low rate of personal saving leaves consumers unprepared for their customary role of pulling the economy out of recession, according to Lacy Hunt, chief economist for the Hong Kong Bank Group in the United States. 1 The biggest problem in America's economy ˙ .. is debt. It is not so much corporate debt, ˙ .. but consumer debt ˙ ... [I]ndividuals are in no position to spend the economy out of recession ˙ .. no room to raise borrowing, no savings to run down. 2 The past three years have not been a normal postwar recession, but a depression ˙ ... [T]he current episode of strength will soon peter out in a triple dip, followed by a deeper stage of depression ˙ ... Debt has grown too large to be sustained out of cash flow. As soon as the balance sheet is depleted, a deeper crisis of asset liquidation will catch the world by surprise. 3 Reid provided valuable research assistance. The views and opinions expressed in this article are solely those of the author and should not be attributed to the Federal Reserve Bank of Richmond or the Federal Reserve System.