Putting Savings In A Smug Account

“The United States must increase its national saving rate. Although we should deploy, as best we can, tools to increase private saving, the most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.”

The quote came from Fed Chairman Ben Bernanke while giving a speech at the Conference on Asia and the Global Financial Crisis on October 19, hosted by the Federal Reserve of San Francisco. Bernanke also stated, “We were smug”, referring to the years of feckless lending practices when the U.S. economy was bubbling over with easy money from cash-rich countries. I imagine the statement was said rather smugly.

It’s a mystery as to how Bernanke expects consumer saving rates to increase given the lack of jobs and a questionable revival of pre-recession wages for the still-employed considering their sizable pay cuts and reduced hours.

Personal savings of disposable personal income was 3% in August, down from 4% in July and significantly lower than the peak rate of 6.9% in May. Fueled by income tax refunds and stimulus package disbursements, critics at the time suggested consumers were slighting the system by saving rather than spending the money to get the economy moving.

Whatever savings people have managed to accumulate will soon be spent to pay winter heating bills, higher gas prices, medical bills, credit card debt, etc., and quickly consumed during the holiday season to give families a temporary, but desperately needed, good-time feeling.

The sole means by which large numbers of consumers will have the ability to add to their savings is through working. The only way the President could possibly deliver on a promise to create or save 3.5 million jobs by the end of 2010 will be by out-of-focus hocus-pocus employment figures. Obama is not a magician.

Much of the blame to shame goes to Henry Paulson, Ben Bernanke and Timothy Geithner. These overlords of taxpayer moneys squandered their opportunities to leverage the recipients of TARP funds to allocate the handouts where they were intended. Rather than renegotiate home mortgages, banks deliberately refused to accept their part in correcting the fallout from the their historic lax lending practices, which led to millions of residential and commercial toxic loans and a near global collapse of financial markets.

Rather than use relief funds as intended, banks have hoarded the bailouts, denying credit lending to American consumers and restricting lending to small businesses to invest in future growth to create jobs. Wall Street is doing one heck of good job of staying on track for self-propelled titanic gains, assured that Bernanke and Geithner will not allow banking markets to sink, as they had infused banks with the $700B Troubled Asset Relief Program. America is essentially frozen in a void of economic stagnation.

Instead, investment bankers are on another unhealthy round of risky bets that have catapulted the DJIA to over 10,000 points from a low of 6,470 in March as they care more about their own interests than propelling economic growth. The Oganisation for Economic Co-operation and Development leading indicators don’t jibe with the worldwide numbers of unemployed, homeless and destitute citizens.

Thus far this year, banks are so comfortable with the status quo that they have supplied lobbyists with over $220M in a concerted effort to thwart meaningful financial reform.

Be rest assured, our economic whizzers, Ben Bernanke and Timothy Geithner, are on the same scripted page of advising world financial markets that the United States has targeted American consumer savings as a strategy to offset the imbalance of global trading.

"Everyone is going to have to come to terms with the fact that we are going to save more in the United States," Geithner chimed during an interview on October 6 with German weekly newspaper Die Zeit. In other words, don’t count on American consumption to fuel worldwide economic recovery.

“China will carry out the exchange rate regime reform and the United States will increase saving rates so as to promote balanced and strong growth and prosperity in the two nations," read a fact sheet released after the China-U.S.A. Strategic Economic Dialogue held in Beijing where the ‘special representative’ of President George W. Bush was then-Treasury Secretary Henry Paulson, That goes way back to December 15, 2006.

Of lesser importance and with a great amount of vanity, on June 2, 2009, prior to addressing graduates of his alma mater, Harriton High School in Rosemont, PA, Economic Advisor Larry Summers said, “…a higher savings rate can still go with a rising standard of living as long as income is growing.”

C’mon, Larry, you must realize that it’ll be quite some time before “income is growing”. The only things growing are the undeserved Wall Street bonuses and the egos of you and your fellow economists.