US savings rate sinks to lowest since Great Depression - Business News - Business - The Independent

US savings rate sinks to lowest since Great Depression

The offical figures published yesterday, a day ahead of the retirement of the chairman of Federal Reserve Alan Greenspan, will be seen as a telling verdict on his 18 year reign at the US central bank.

Mr Greenspan is tonight expected to sanction the Fed's 14th consecutive interest rate rise - to 4.5 per cent - in part to temper the consumer boom and encourage saving again.

The savings ratio fell to minus 0.5 per cent last year, meaning Americans not only spent all of their after-tax income but also had to increase their borrowings or plunder their savings. This is the first time theratio has gone negative for an entire year since 1932 and 1933, when the US was struggling to cope with the Great Depression.

The savings ratio is seen as a key economic indicator as it shows how vulnerable households are to a sudden shock such as a surge in interest rates or unexpected redundancy. Mark Zandi, an economist at the analysts' website Economy.com, said the low level of savings would became a problem only if interest rates continued to climb.

However, the markets are increasingly betting that the Fed will use its statement tonight to send a signal it is close to the end of its tightening cycle that began in2004. Weak GDP figures for the final quarter of last year - showing that growth slowed from 4.1 to 1.1 per cent between the third and fourth quarters of the year - boosted that speculation.

But there is growing concern the housing bubble will burst, leaving millions of families nursing debts larger than their homes, or simply suffer a sudden slowdown - putting the brakes on the economy. It will be probably before some time before Mr Greenspan's 18-year legacy at the helm of the world's most central bank is set in stone, and he has fans and critics in equal measure.

His supporters point to his calm captaincy of the US economy through the Wall Street crash of 1987, just weeks after he took over, the Asia crisis in 1997, the Long-Term Capital Management affair the following year, and the aftermath of the September 11 attacks. He averted recession - other than a brief dip by historical standards in 2001 - by showing himself willing to support investor confidence by flooding the market with liquidity. However, his critics say this was a flawed policy, whose negative consequences may be felt by the coming generation.

Critics argue his willingness to protect investors from their own speculative excess created what they called the "Greenspan put" - a one-way bet that ensured they would never have to account for their gambles. At the same time he allowed a succession of asset price bubbles to build up, the latest of which is the spike in residential property prices.

The Fed chief plans to end his days at the central bank with little fanfare. After the leaving the Fed, Mr Greenspan plans to open his own economic consulting business. He also may show up on the speaking circuit and write a book.

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skies as 007 for first time
PROMOTED VIDEO
Sport
Steven Gerrard celebrates after his late winner
champions leagueGerrard and Balotelli ensure victory
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week