Worst savings rate since: Guess. Guess!

There are a number of unsustainable aspects to our economy right now. That probably means that we are heading for a correction. Maybe a recession. Today's New York Times online has the following to offer:

A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases. For the month, the savings rate fell to 0.7 percent, the largest one-month decline since a 3.4 percent drop in August.

The 0.5 percent negative savings rate for 2005 followed a 1.8 percent rate of savings in 2004. The last negative rates occurred in 1932, a drop of 0.9 percent, and a record 1.5 percent decline in 1933. In those years Americans exhausted their savings to try to meet expenses in the wake of the worst economic crisis in U.S. history.

One major reason that consumers felt confident in spending all of their disposable incomes and dipping into savings last year was that a booming housing market made them feel more wealthy. As their home prices surged at double-digit rates, that created what economists call a ''wealth effect'' that supported greater spending.

Economists seldom impress me with their explanative powers. It seems likely, almost a certainty, that the reasons for a negative savings rate must also involve rising health care costs, stagnant wages (perhaps not stagnant real income as globalization and cheaper prices boost that) and higher fuel costs. A recent study reported that the rich are, per usual with a Republican administration, getting richer and the poor are getting poorer.

In fact, only by considering the impact that these additional costs have on the citizenry can one explain a positive savings rate for 2004 and then a drastic cut in savings by 2.3 real percentage points. Oddly enough, that impact is within one point of the Consumer Price Index rise in the past year. A slowing economy, a raising set of prices, and less savings are the attributes of 2005. The underlying problems are energy and health care costs, and those show no sign of subsiding in 2006.

More of the same can be expected in the near term, reports the Congressional Budget Office (via the New York Times):

WASHINGTON, Jan. 29 — Millions of low-income people would have to pay more for health care under a bill worked out by Congress, and some of them would forgo care or drop out of Medicaid because of the higher co-payments and premiums, the Congressional Budget Office says in a new report.

An aggregate income crunch on the lower economic spectrum would show up in the savings rate. In all likelihood, the upper class in the economic spectrum -- I don't have the hard numbers -- can save just as much as before and enjoy an aggregate rise in income: from their real income, lesser taxes, and the society-wide flush of cheaper products from foreign markets.

This is the true situation we presently face in the American economy -- in spite of what the administration and their sycophants say. It is unfortunate that Bush will tout economic progress, even while the wheels of his Coolidgesque economic ride are shaking on the bumpy pavement.

Expect more of the same from 2006. Do not expect GOP plans to assist those in the income crunch. And, the less savings a person has today, the longer they will need to work.

Or, the more likely they are to vote in a number of progressives for a generation of taxing the rich and spending on the needy.

Frankly, bring it on, Mr. President.