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.

Arts and Entertainment
A host of big name acts recorded 'Do They Know It's Christmas?' in London on Saturday
musicCharity single tops chart
News
people
News
peopleChildren leave in tears as Santa is caught smoking and drinking
Arts and Entertainment
Uuganaa Ramsay
arts + entsHow the proud name of a people became an offensive term
PROMOTED VIDEO
News
ebooksNow available in paperback
News
peopleFormer civil rights activist who was jailed for smoking crack cocaine has died aged 78
News
Boxing promoter Kellie Maloney, formerly known as Frank Maloney, entered the 2014 Celebrity Big Brother house
people
Sport
Dwight Gayle (left) celebrates making it 1-1 with Crystal Palace captain Mile Jedinak
premier leagueReds falter to humbling defeat
Arts and Entertainment
Morgana Robinson
arts + entsIt is not easy interviewing Morgana Robinson. Here's why...
News
video
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

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible
Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

Look what's mushrooming now!

Meat-free recipes and food scandals help one growing sector
Neil Findlay is more a pink shrimp than a red firebrand

More a pink shrimp than a red firebrand

The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

Oeuf quake

Bill Granger's cracking egg recipes
Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

Terry Venables column

Wayne Rooney is roaring again and the world knows that England are back
Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

Abject leadership is allowing football’s age-old sores to fester

Those at the top are allowing the same issues to go unchallenged, says Michael Calvin