Will the Rising Personal Savings Rate Boom the US Recovery?

Americans have been roundly criticized in the past for our low savings rate. Before this recession hit I'd hear and read articles on how "bad" the US was in comparison to other nations, how we had one of the lowest savings rates in the world, how we were addicted to debt in our credit cards and how this was going to hurt everyone one day. Well our debt culture has come home to roost now, but contrary to the obvious, starting to save now could be the wrong thing for the country.

It's true that our savings rate got dangerously low. From the 1950s to the 1980s the savings rate was typically 8-10%, rising as high as 12% in recessionary times. Then it dropped, reaching about 1% from 2005 on, and occasionally even went negative. But in November the savings rate grew to 2.8%, economists are projecting it to be 3-5% in 2009 (Goldman's projecting it to reach 6-10%) and this will be the sharpest reversal since WWII - makes sense given that the number of jobs lost last year is the largest since the end of the War.

The catch-22 of this situation is that improving our savings rate doesn't help the economy in the short run. Obama is trying to get a bill through to stimulate the economy with tax breaks and infrastructure projects to create jobs for the people who desperately need them, but it may not be effective if Americans save much of the additional income they receive.

We need to return to the values of living within our means and saving for the future - which the generation who grew up in the Depression learned so well. But to succeed this means we need to find a middle ground as a nation - to bring back a fiscally conservative culture and get away from the debt addiction, but at the same time put through a stimulus package to get money and jobs flowing again.