I Don't Get This Math

Yes, the savings rate is up, but if you look at this chart, you will see it has a long way to go to get back to historic norms. With the wealth evaporation of the past two years, mounting job losses, aging baby boomers past their peak and other considerations, one has to wonder where the savings are coming from, even at this low level.

http://www.businessinsider.com/chart-of-the-day-personal-saving-rate-2009-9

Moreover, Bloomberg is reporting that consumer spending was up significantly in August. Indeed, the biggest jump since 2001 and not all of it was due to cash for clunkers.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSbaO.gu.aps

Yet first time unemployment claims were higher than expected last week and foreclosures - residential and commercial - are on the rise.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ak__6D.HTBQM

Finally, might I add that we as a country still have record amounts of debt.

http://blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

While on an individual level we have begun to deleverage (either through payment or default) on a government level we are increasing debt to dangerous levels. And there may be a limit to how long China and Japan will continue to fund our spending spree. Most Treasuries are now being bought by the Fed and foreign purchases were down 40% in the second quarter versus the first, so the government punch bowl may be taken away sooner than many expect.

There is something about this math that does not calculate for me. How can we make less, spend more and increase savings? The only answer I can think of is government stimulus. And government stimulus is not the same thing as an economy rebounding. And when that goes away we will see the recession in full bloom. Some view recession as a bad thing. While not dismissing the financial and other pain people will feel in a recession it unfortunately is the only cure for our excessive debt levels. It is a correction to many years of economically unsustainable spending on our part.

Disclosures: None.