Why Aren't Savings Rates Moving Even Higher?

From the last quarter of 2008 to the first quarter of 2009, the USA personal savings rate went up from just over 3% annualised to just over 4%. This movement is expected during economic decline, but we are asking the question: given how severe the decline is, why aren't people saving even more?

The USA has barely budged from a culture of consumerism to a culture of thrift. Given the depth of the crisis, we would expect the response on the part of the citizenry to be more urgent. There are several possible explanations as to why the increase in savings is muted.

One is that the citizenry is 'buying' the official story that the 'recession' will be ending this year and recovery will follow. Thus, with the difficulties apparently only of a short-term nature, people can continue their spending habits mostly as usual with some minor adjustments (e.g. shopping more at Wal-Mart).

Another explanation is that somehow the citizenry 'knows' that the 'recession' is short-term and is acting appropriately. Things really are aren't all that bad. In this scenario, our estimations are way-off, and our use of the term depression, over-reactive.

Perhaps there is just a lot of cultural lag. We have read quite a few horror-stories about people who lost their livelihoods, but just kept on spending as if nothing was going on - and, in the process, depleted their savings and ran up credit-card debts. Perhaps a large portion of the population is engaging in massive denial and unconscious, inappropriate spending.

Finally, at the depth of the Great Depression in 1932 and 1933, much to their chagrin, Americans dis-saved and personal savings rates went negative. It's possible that history repeats and although people may want to be saving more, circumstances are too harsh and spending patterns are adjusted too late.

Wal-Mart and Fixed Costs

We're pleased to announce we've started blogging on the Curmudgeon Report. As the name would suggest, we will use that blog to rant. Probably loudly. Comments are appreciated and invited, as they are on all our blogs.

The previous post of our co-writer got us thinking today, while we partook of services at the Church of the Consumer. Namely, we went shopping in the local Wal-Mart. Looking around, at the ruts developing in the floor, the tears in the linoleum, the spotty supply of cooking oil... we asked ourselves: how will Wal-Mart last?

Yes, we are fully aware that many have been calling for the death of Wal-Mart. In our reading experience, these run along energy-availability arguments, such as the arguments of James Kunstler. We don't dispute what Mr. Kunstler says, but we don't believe that Wal-Mart necessarily has to go under. In our estimation, it's an excellent company with a brilliant business scheme.

But, at the same time, we are certain that any one regular Wal-Mart store -- much less a Supercentre -- represents enormous fixed costs. Electricity, heating, maintaining, and cleaning the store; transportation of inventory and stocking; none of which are exactly cheap.

We fully believe that the economy in the United States is going down 50%-75%, followed (we hope) by a long, slow recovery. With this catastrophic drop in economic activity, we doubt Wal-Mart will be able to continue to serve the 25,000 or so population area. We suspect only places of 100,000 persons and up will be able to support a store. That, of course, means a lot of Wal-Marts are going to be closing... probably even the one in our town.

We Scared Ourselves

Yesterday's post about dealing with hyperinflation got us scared. So we will tell you about two action steps we are beginning to implement immediately.

The first step is to lay in a one year supply of non-perishable food and basic consumable items. We will maintain this inventory and rotate the stock. Our inventory consists of things like 100 pounds of rice, 100 pounds of flour, 100 pounds of oats, and so forth.

We imagine several benefits from this programme. First, is that it is probably one of the best uses of cash. If stuff explodes in price, we will regret hanging on to our little dollars. Second, it provides an emergency ration we could use to keep being reasonably well fed if shortages should develop. Third, it will lay in a stock of useful 'trade' items such as food, soap, razor blades, etc. More than once a neighbor has knocked on the door asking for a roll of toilet paper. Next time we'll ask for a jar of herring, or whatever, in return.

The second step is to keep an eye out for things that are 'too cheap'. There is much liquidation going on as many businesses fold. This makes for a plethora of odds and ends that get sold below cost at places like Big Lots (and even Wal-Mart from time to time). Additionally, more good, cheap stuff is pouring out into our neighbour's lawns during rummage sales. It's an art to know when to pounce and 'buy it all', and when to avoid buying something one won't use and probably can't parlay into something one will.

We suspect the coming hyperinflation is going to turn a lot of people into peddlers. It's a tried and true survival strategy in hard times. It's also a way people can work together - swapping an extra candle for a chocolate in order to maintain a modicum of creature comfort in a dark hour.

What is Poor?

As one of the biggest shopping day of the year dawns, we look out the window and -- to quote the archetypal priest -- we think of those less fortunate. No, dear Reader, we don't mean those who couldn't buy their family a new plasma TV. We refer to those in the world are inconceivably poor: they cannot even afford proper nourishment.

For example, take Haiti. 80% of Haitians live on $2 or less a day -- making them part of the 2.4 billion or so who live on the same budget. Mind you, Reader, than isn't $2 for food a day, that's just $2 a day. They are so poor they are eating baked mud, potentially ingesting various toxins or parasites. This mud they eat is euphemistically referred to as a cookie.

Mmmm, cookies.

We have no ethical axe to grind, one way or the other. We merely feel greatly irked at people who worry when they cannot blow large amounts of money on the holidaze. For instance, a worker at a recently-reopened cookie manufacturer in Ohio said, after getting a $1,500 gift card, 'I can give my kids a Christmas.'

Really? No kidding. We can see a couple ounces of gold dancing in our eyes if someone handed us $1,500. A person in Haiti would have probably screamed for joy, since they could then have eaten on $5 a day for about a year... but this person instead saw Wal-Mart, or possibly Toys-R-Us.

No one in the West quite understands what it truly means to be poor. We certainly don't, and we don't want to, either. The poor of Haiti have little-to-no hope of improving their financial situation, because they cannot even afford to live hand-to-mouth. In the West, one still has the potential to improve one's finances, even in this Depression. If one gets a windfall, like the worker and her $1,500, one must think long and hard about spending it wisely. Use it for a lasting improvement in one's living conditions: pay down debt; shore up investments; buy some precious metals. To fritter away a windfall, time and time again, launches one on the road to perfect understanding of just how poor the average Haitian really is.