Hidden Benefits of the recession

Posted by Don on June 6, 2009

It appears Americans are finally catching the message.  The Federal Reserve released the consumer credit numbers for April today and consumer credit was down $14 billion over the last month.  This is the sixth monthly drop in the last 7 months.

America has gone from a high of $2.596 trillion in December of 2008 down to $2.507 trillion at the end of April.  The US has paid off almost $90 billion in four months.  However, this pales in comparison to the amount of money that US citizens have been saving.  In the same four month period the Bureau of Economic Analysis reports that the US has averaged an annualized estimated savings of $511 billion.  In April the annualized savings rate was 5.7% or equal to an estimated $620 billion in savings per year.

This does not bode well for an economy that is driven 70% by the consumer.  Look for the service industry to keep laying people off (retail stores and restaurants) until either the savings rate goes down or the rest of the economy stabilizes.  This probably means vacations will be down this summer which will hurt the resorts and hospitality industries.

If the American people can save almost enough in four months to pay off almost all of the consumer debt then in my opinion we can repair our economy and get back on our feet.  America we need to keep doing what we have been doing for the last six months (December was the one month where debt went up, but we still managed to save also).

We need to return to the lifestyles of our ancestors where we save our money and spend it on necessities or items we have saved enough to pay cash.  These numbers show that we can get out of debt when we have to, but this will cause the economy to take longer to recover and the future rate of growth looks to be much less than normal.

Lets all do our part and end the credit cycle and learn to save an pay cash for purchases.