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If you have taken a look at the savings rate lately you will see that in the past three months it has been dropping. In September it dropped to its lowest level since 2007. The drop in the savings rate has lead to a .6% increase in consumer spending. Everyone Cheer hooray!!! The consumer is back in America and powering the economy forward. But, this drop in the savings rate should have nobody excited. In fact it should be the opposite, you should be down right scared of this trend.The savings rate is the amount a consumer saves of his disposable income. It has been relatively low in the United States since the 1980’s, with Americans saving on average only 3.31 % of their income in the decade leading up to the recession (you can get the figure here http://research.stlouisfed.org/fred2/series/PSAVERT). The Great Recession as it is now known caused a huge jump in this rate. It reached 7.1% at the height of the recession, but has since dropped off. This should be worrying for you.With it returning to lower levels it could mean that customers are returning to their old habits of paying for new items by taking on debt that they can not manage. The saving rate in the U.S. should be rising in order for people to save for retirement, fund big purchases, and rebuild their balance sheets.  If the Savings rate were to raise this would allow the U.S. to help wean itself from its addiction of cheap imported goods from China. By saving money consumers are making an investment in the future. China has had a high consumer savings rate for years. Because their consumers must save up to make large purchases, credit is almost nonexistent to the average consumer. This leads to a huge surplus of money in the country’s banks.  With so much money flowing in the Chinese government turns around and invests it in treasury bills which it buys with the money its consumers are saving.With the holiday season fastly approaching the drop in the savings rate should be worrying to everyone. Consumers could be gearing up to take on a lot of debt and splurge on shopping this season. This is never a good thing.  The debt bubble’s hangover is just starting to ware off, and if consumer go on another spending binge again we could be in for a far worse hangover after the party is over. In short if the financial crisis has taught us anything it is that the American consumer should be saving more not splurging. I don’t know about you, but with the U.S. consumer’s savings on a three month decline.  I am scared that America may be back to its old ways and heading for a disaster.

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