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Forgotten man

For starters, today's forgotten man has just pushed his savings rate up, against expert advice, from the recent zero level to 2 percent of earnings; not where it was in the early '80s at over 10 percent, but it's a start.

From Economics 101: Savings equals investment means that job-creation comes out of free-market capital investment and not out of government debt. The experts don't want him to save. They've said so.

But the extravagant consumer spending of the last decade or so hasn't come out of earnings alone, although it has pushed the savings rate down to zero; it has also come from huge jumps in credit card debt and from drawing down home-owner equity in housing.

Median household credit card debt was at $9,312 in 2004, more than double the $4,300 of 1994. Since then it's gone up even higher, but is now down a bit from all-time highs, the U.S. economy website reports. The notion of reverse mortgages whereby home-owners withdraw the equity in their houses, annuity-fashion, has been around since 1961, and by 2004-06 it was running at nearly $200B per quarter, the Calculated Risk blogsite reports; which means that source of additional consumer cash upped spending by adding more than 8 percent to real disposable income. Taken together with the decision not to save any more, those two consumer decisions have underlain the (temporary) ability of consumers to generate a full 70 percent of GDP. Why real economists choose not to see that as an artificially-strong and not-long-range-sustainable role for consumers while this amateur does, I don't know.

I'd say that-expert-stimulation-toys notwithstanding- consumer will now raise their savings levels and lower their credit card debt and mortgage-equity-withdrawal levels, thereby reducing their spending perhaps back down to the low-1960s-percent-of-GDP that it represented in the more-economically-rational early 1980s. If that means fewer Starbucks and Toys-R-Us outlets in every suburb, less spending at Victoria's Secret and California desert resorts, fewer McMansions and more suburban poultry flocks, so be it.

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