Wednesday, February 04, 2009

We Are So Screwed

Apparently, our recently discovered national thriftiness is dooming our economy (via Megan McArdle):

Consumers are pulling back because they've realized that they're too far in debt. The economy is shrinking in large part because consumers are pulling back. And the result, almost surely, is to leave household balance sheets worse than ever. I can't do this accurately until the Federal Reserve's flow of funds data have been updated, but almost without question the ratio of household debt to personal income has been rising, not falling, as consumers try to save more.

So to escape the debt trap we're in, we must spend more. This is cruel irony indeed, but the lesson really is that we ought to have been a little more thrifty when our economy could afford it as opposed to now, when our economy is diving off a cliff. Our economy has survived on a combination of debt and consumerism, and we shall now pay heavily for our short-sightedness.

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