Thursday, March 20, 2008


I know many of you don't like reading through charts and figures, so let me cut to the chase. Not only is the American consumer tapped out, but they are spending more than they earn and purchasing stuff of little or no durable value. Here's part of the story ...

A couple of weeks ago I posted this, explaining how Americans are in debt and tapped out. It turns out things are even worse than we thought.

According to Northern Trust's Paul Kasriel, not only did we go on a borrowing binge but between 1999 and 2006 but Americans spent more than they earned every year except one (2000). But here's the interesting part. American households spent more than they earned only 6 times before ... and 5 of those times were in the Depression-World War II era (see chart). Here's Kasriel:

From 1929 through 2006, there were only 13 years in which households incurred deficits – i.e., spent more in total than they earned after taxes. Two of these household-deficit years occurred during the Great Depression of the 1930s, three occurred shortly after the end of World War II and one occurred in 1955. The remaining seven household-deficit years occurred in 1999 and 2001 through 2006. Three things to note: (1) that households have run deficits in six out of the past seven years is unprecedented; (2) the magnitude of the 2004, 2005 and 2006 household deficits are unprecedented, and; (3) the household deficits starting in 1999 occurred in a period when asset prices showed extraordinary increases.

As if this isn't bad enough, it turns out that while going into debt we did not purchase anything of value ... except bigger homes (and we all know how that's going).

There's much more in Kasriel's newsletter, so check it out.

- Mark

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