US savings rate is negative for a second year

On Thursday, the Commerce Department published the grim reality. People are sustaining their unwarranted lifestyles by eating into their wealth. In 2006, the savings rate was minus 1 percent. Moreover, the dismal 2006 savings rate exceeded the negative savings rate recorded in 2005, when people spent 0.4 percent more than they earned. Statisticians have to go back to 1933 to find a lower savings rate. The savings rate has been negative for an entire year only four times in history -- in 2005 and 2006 and in 1933 and 1932. Now, does that sound like something that can continue indefinitely?

So what is going on? Presumably people understand that their income is lower than their expenditures. This kind of thing shows up pretty darn quickly on your bank account or credit card bill. And for those who are perhaps a little confused about how this works, you should be looking for two things. First, if you bank balance is lower this month than last month, this means that your savings rate has turned negative. Second, if your credit card debt is continually piling up, then you are running down your wealth.

Roll this film forward, and what are we looking at? A generation of poor old people, without savings, living on the generosity of their children.